Who is Considered a Fiduciary Under ERISA? The Role and Impact of an Employee Retirement Plan Fiduciary

Who Is Considered A Fiduciary Under Erisa The Role And Impact Of An Employee Retirement Plan Fiduciary

Written by Bradley Knowles

June 12, 2024

Even though it has a direct impact on the lives of the majority of Americans, relatively few of us are familiar with the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). It governs employer-provided benefits including pensions and retirement plans, as well as other fringe benefits such as health, life, and disability insurance. It’s been the law of the land since it was enacted on Labor Day, September 2nd, 1974.

If you’ve done the math, that means ERISA turns 50 this year, a milestone birthday; and yet it seems that the waters have only gotten muddier for plan sponsors. Throughout the last 50 years, and amid the myriad of Department of Labor (DOL) rule changes, evolving technology, and tens of thousands of lawsuits, it can be difficult for plan sponsors, and others involved in the administration of employee benefit plans to know exactly what their responsibilities are.

Are You a Fiduciary Under ERISA?

Benefit plans must have at least one named fiduciary (a person or entity) having control over the plan’s operation. For some plans, it may be an administrative committee or a company’s board of directors. It seems obvious then that the named fiduciaries of the plan are, in fact, fiduciaries. But what about everybody else?

ERISA defines three other broad categories of fiduciaries based on the function they perform for the plan. So, regardless of title, plan fiduciaries include anyone who:

(i) Exercises any discretionary authority or discretionary control over the management of a plan, or exercises any authority or control over the management or disposition of plan assets;

(ii) Renders investment advice to a plan for a fee, or has any authority or responsibility to do so; or

(iii) Has any discretionary authority or discretionary responsibility over the administration of a plan.

Common fiduciaries include the plan sponsor, the trustee, investment advisors, third-party administrators, and any other individuals exercising discretion in the administration of the plan. If the plan has an administrative committee, all members of the committee are fiduciaries, as well as those who select committee officials. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan. If the answer is yes, they are a fiduciary.

The Role of Plan Fiduciary Should Not be Taken Lightly

Plan fiduciaries have, by definition, a fiduciary duty to the plan. The consequences of breaching fiduciary duties can be harsh, and the liability is personal and joint and several. The number of ERISA lawsuits filed continues to grow, not to mention potential penalties related to DOL enforcement actions. In 2023 alone, the Employee Benefit Security Administration (EBSA) reported recovering over $1.4 billion in plan assets, $844 million of which came from direct enforcement action.

It’s important to remember that serving as a fiduciary for your company’s retirement plan is a responsibility that can affect the lives of current, past, and future employees. It is key to understand your role as a fiduciary and act prudently and with due care. Also, keep in mind that outsourcing plan administration doesn’t absolve you of your fiduciary duty. Keep good records and document the rationale for decisions made on behalf of the plan. The DOL and IRS have extensive resources available for plan sponsors and administrators. And you can always reach out to your contact at Hawkins Ash CPAs with any questions you have.

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Bradley Knowles
As an associate, tax and audit services to a variety of clients that include commercial entities, individuals, nonprofit organizations, and employee benefit plans.

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