ERISA Plan Fiduciaries
Benefit plans must have at least one named fiduciary having control over the plan’s operations. This person or entity is responsible for making decisions about the retirement plan and must put the participants’ interests ahead of their own when making those decisions. Plan fiduciaries have a duty to the plan by overseeing the plan, monitoring investments, ensuring compliance with ERISA and the plan document, and managing participant assets. ERISA, the Employee Retirement Income Security Act, is a federal law that establishes minimum standards for voluntary pension benefit plans in private industry to prevent employers from misusing retirement funds.
A Fiduciary’s Role Regarding Distributions and Loans
ERISA plan fiduciaries are accountable for ensuring that participant distributions are made only upon a permissible distributable event (e.g., termination of employment, retirement, death, disability, or hardship, as permitted by the plan document). They must also confirm the distribution amount is calculated correctly, obtain required approvals and supporting documentation prior to processing, and ensure timely execution.
Similar governance considerations apply to participant loans. Fiduciaries must ensure participant loans are permitted under the plan document and comply with applicable IRS limits (generally the lesser of $50,000 or 50% of the participant’s vested account balance). They must also confirm loan terms include a reasonable repayment schedule, repayments are properly collected and deposited, and loan defaults are appropriately monitored and handled.
Governance Considerations for Electronic Distribution and Loan Processing
Fiduciaries have the ultimate responsibility for processing participant loan and distribution transactions; however, many ERISA retirement plans have transitioned those processes to online self-service platforms maintained by their third-party administrator (TPA) or recordkeeper, where participants initiate and submit requests electronically. Given this structure, fiduciaries often rely on the service provider’s system controls and automated procedures.
Even when fiduciaries rely on TPAs or recordkeepers to facilitate electronic distribution and loan processing, they continue to owe a duty to the Plan. This process cannot be fully outsourced. While administrative functions such as identity verification, transaction management, and payment issuance may be delegated, fiduciaries retain ultimate responsibility for oversight. This includes ensuring that the Plan permits the distribution or loan, that the participant is eligible under the Plan terms, and that the TPA or recordkeeper is administering transactions in accordance with the Plan document and applicable regulatory requirements.
Governance remains necessary even in an electronic processing environment. Fiduciaries should periodically monitor TPA performance, obtain an understanding of their relevant system controls, and maintain oversight to ensure that Plan provisions—such as eligibility criteria and loan limits—are properly applied and accurately calculated.
