Fiduciary Responsibilities and Solutions
By Susan Shoemaker
Auto Dealer Alert, 2006 Volume 6
Most auto dealers offer their staff the opportunity to participate in a 401(k) plan. While this is a wonderful benefit to provide to staff, it does come with responsibility since the auto dealer, as the plan sponsor, is a fiduciary of the plan. As detailed in the Department of Labor’s ERISA guidelines, the fiduciary duties of a retirement plan sponsor are vast, and not many plan sponsors are aware of these responsibilities. Due to a number of factors, including the recent mutual fund scandals, increasing law suits, and a focus by the Department of Labor and Internal Revenue Service on a number of issues regarding duties of fiduciaries, plan sponsors need to be more vigilant in understanding the duties and responsibilities. In addition, the plan sponsor should be proactive in making sure that all the plan fiduciaries have knowledge of their obligations. Examples of duties and responsibilities, while not exhaustive, include the following:
- Acting solely in the best interest and exclusive benefit of participants and beneficiaries
- Selecting and monitoring plan investment options
- Understanding, tracking, and evaluating the reasonableness of plan expenses
- Furnishing plan information to participants
- Acting with care, skill, and diligence that would be exercised by a reasonably prudent person who is familiar with such matters
- Seeking advice of experts and evaluating the advice if a fiduciary is unsure of their expertise
A plan’s fiduciaries will normally include the trustee, investment advisers, all individuals exercising discretion in the administration, all members of a plan’s committee (if applicable), and even those who select committee officials. Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. Fiduciary status is based on the functions performed, not just a person’s title.
The duty to act prudently is one of the fiduciary’s central responsibilities under ERISA and requires expertise in a number of areas. If lacking expertise, a fiduciary will want to hire someone with professional knowledge to carry out the investment selection/monitoring and other functions. Prudence focuses on the process for making fiduciary decisions and not just the decision.
With fiduciary responsibilities, comes the potential for liability. Fiduciaries that do not follow basic standards of conduct may be personally liable to restore any losses to the plan. However, the liability may be limited by implementing a number of controls and procedures to include the following; documenting processes, allowing participants to have control over investments (the fiduciary still retains the responsibility for selecting the providers of the investment options and the options themselves and monitoring performance), giving participants sufficient information to make informed decisions, and hiring experts to assist with fiduciary functions.
Conclusion
This is not an easy time to be a plan fiduciary. Fiduciary liability issues will remain in the spotlight as new developments continue. Auto dealers, as the plan sponsor, should look into the details of the investment options available to participants, investigate how the funds were chosen, and understand what fees the plan participants are paying. By being aware of fiduciary duties and by implementing processes to meet those duties, offering a retirement plan can still be one of the most rewarding decisions a plan sponsor can make as it provides an opportunity for staff to meet their retirement goals. If you have any further questions about your fiduciary responsibilities, contact Susan Shoemaker at 248.223.3722 or susan.shoemaker@plantemoran.com.
