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Plan Insight

JUNE 2010 Newsletter

Qualified Plan Fiduciary Responsibilities

Many of the actions needed to operate a 401(k) plan involve fiduciary decision -  whether you hire someone to manage the plan for you or do some or all of the plan management yourself. Controlling the assets of the plan or using discretion in administering and managing the plan makes you or the entity you hire a plan fiduciary to the extent of that discretion or control. Thus, fiduciary status is based on the functions performed for the plan, not a title. Be aware that hiring someone to perform fiduciary functions is itself a fiduciary act.

Some decisions with respect to a plan are business decisions, rather than fiduciary decisions. For instance, the decisions to establish a plan, to include certain features in a plan, to amend a plan and to terminate a plan are business decisions. When making these decisions, you are acting on behalf of your business, not the plan, and therefore, you would not be a fiduciary.  However, when you take steps to implement these decisions, you (or those you hire) are acting on behalf of the plan and thus, in making decisions, are acting as fiduciaries.

Your Basic Responsibilities

Those persons or entities that are fiduciaries are in a position of trust with respect to the participants and beneficiaries in the plan. The fiduciary’s responsibilities include:

·   Acting solely in the interest of the participants and their beneficiaries;

·   Acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;

·   Carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with such matters;

·   Adhering to the plan documents; and

·   Diversifying plan investments.

These are the responsibilities that fiduciaries need to keep in mind as they carry out their duties. The responsibility to be prudent covers a wide range of functions needed to operate a plan. And, since all these functions must be carried out in the same manner as a prudent person would carry them out, it may be in your best interest to consult experts in the various fields, such as investments and accounting.

In addition, for some functions, there are specific rules that help guide the fiduciary. For example, if your plan provides for salary reductions from employees’ paychecks for contribution to the plan, then these contributions must be deposited timely. The law states that this must be accomplished as soon as they can be segregated from the employer’s assets timely, but no later than 7 business days following receipt, or following the date the amounts would otherwise have been paid to the employee as compensation.

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Monday, December 19, 2011 04:17 PM

 
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