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In every retirement plan, there are
individuals or groups of people who use their own judgment or
discretion in administering and managing the plan or who have
the power to or actually control the plan’s assets. These
individuals or groups are called
plan fiduciaries. Fiduciary status is based on the functions
that the person performs for the plan, not just the person’s
title.
A plan must name at least one fiduciary in the written
plan document, or through a process described in the plan, as
having control over the plan’s operations. This fiduciary can be
identified by office or by name. For some plans, it may be an
administrative committee or the company’s board of directors.
Usually, a plan’s fiduciaries will include the
trustee, investment managers, and the
plan administrator. The plan administrator is usually the
best starting point for questions you might have about the plan.
Fiduciaries have important responsibilities and are
subject to certain standards of conduct because they act on
behalf of the participants in the plan. These responsibilities
include:
-
Acting solely in the
interest of plan participants and their beneficiaries, with
the exclusive purpose of providing benefits to them;
-
Carrying out their duties
with skill, prudence, and diligence;
-
Following the
plan documents (unless inconsistent with
ERISA);
-
Diversifying plan
investments;
-
Paying only reasonable
expenses of administering the plan and investing its assets;
and
-
Avoiding conflicts of
interest.
The fiduciary also is responsible for
selecting the investment providers and the investment options,
and for monitoring their performance. Some plans, such as most
401(k) or
profit sharing plans, can be set up to permit participants
to choose the investments in their accounts (within certain
investment options provided by the plan). If the plan is
properly set up to give participants control over their
investments, then the fiduciary is not liable for losses
resulting from the participant’s investment decisions.
Department of Labor rules provide guidance designed to make sure
participants have sufficient information on the specifics of
their investment options so they can make informed decisions.
This information includes:
-
A description of each
investment option, including the investment goals, risk, and
return characteristics;
-
Information about any
designated investment managers;
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An explanation of when and
how to request changes in investments, plus any restrictions
on when you can change investments;
-
A statement of the fees
that may be charged to your account when you change
investment options or buy and sell investments; and
-
The name, address, and
telephone number of the plan fiduciary or other person
designated to provide certain additional information on
request.
A statement that the plan is intended to
follow the Department of Labor rules and that the fiduciaries
may be relieved of liability for losses that are the direct and
necessary result of a participant’s investment instructions also
must be included.
Fiduciaries that do not follow the required standards of
conduct may be personally liable. If the plan lost money because
of a breach of their duties, fiduciaries would have to restore
those losses, or any profits received through their improper
actions. For example, if an employer did not forward
participants’ 401(k) contributions to the plan, they will have
to pay back the contributions to the plan as well as any lost
earnings, and return any profits they improperly received.
Fiduciaries also can be removed from their positions as
fiduciaries if they fail to follow the standards of conduct.
If you contribute to your retirement plan through
deductions from your paycheck, then the employer must follow
certain rules to make sure that it deposits the contributions in
a timely manner. The law says that the employer must deposit
participant contributions as soon as it is reasonably possible
to separate them from the company’s assets, but no later than
the 15th business day of the month following the payday. In the
Annual Report (Form 5500), the plan administrator is required to
include information on whether deposits of contributions were
made on a timely basis. For more information, see the
Department of Labor’s Ten Warnings Signs That Your 401(k)
Contributions Are Being Misused at
www.dol.gov/ebsa for
indicators of possible delays in depositing contributions.
Plan fiduciaries have a specific obligation to consider
the fees and expenses paid by your plan for its operations.
ERISA’s fiduciary standards, discussed above, mean that
fiduciaries must establish a prudent process for selecting
investment alternatives and service providers to the plan;
ensure that fees paid to service providers and other expenses of
the plan are reasonable in light of the level and quality of
services provided; select investment alternatives that are
prudent and adequately diversified; and monitor investment
alternatives and service providers once selected to see that
they continue to be appropriate choices.
The plan may deduct fees from your
defined contribution plan account. Plan administration fees
and investment fees can be deducted from your account either as
a direct charge or indirectly as a reduction of your account’s
investment returns. Fees for individual services, such as for
processing a loan from the plan or a Qualified Domestic
Relations Order, also may be charged to your account.
For more information, see the
Department of Labor brochure A Look at 401(k) Plan Fees
at www.dol.gov/ebsa or
call the Department of Labor toll free at 1.866.444.EBSA (3272).
Action Item
Source:
U.S. Department of Labor
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