Fiduciary duties in practice
People who manage a plan or its assets are fiduciaries, and they must act prudently and solely in the interest of participants and beneficiaries. In practice that means a documented process for choosing and monitoring investments and service providers, and reviewing whether fees are reasonable. Transactions between the plan and related parties are restricted, and some are prohibited outright unless an exemption applies. Fiduciaries can be personally liable for losses caused by a breach. Many problems come from informal decisions that were never documented, rather than from bad intent. Plan sponsors that hire an outside investment adviser or administrator usually remain responsible for choosing and monitoring that provider.
Operational slips that add up
Common issues include depositing employee salary deferrals into the plan later than the rules allow, applying the plan's definition of compensation incorrectly, and failing to follow eligibility or vesting terms as written. The plan document, the summary plan description given to participants, and the way the plan actually operates should match. The annual report filing must be accurate and timely. Both the Department of Labor and the IRS offer voluntary correction programs for many errors, and using them before an agency finds the problem usually costs less. Group health plans are also generally covered by ERISA and carry their own disclosure duties. Required participant notices, such as fee disclosures and benefit statements, have their own timing rules that deserve a calendar.
ESOPs and closer review
Employee stock ownership plans draw particular attention, especially around the valuation of company stock when the plan buys or sells shares. The independence and process of the trustee and the appraiser are frequent subjects of agency review and participant lawsuits. Privately held ESOP companies also need to plan for their obligation to buy back shares from departing participants. We review plan documents, recent filings, fiduciary records, and service agreements, identify gaps, and outline which corrections can be made voluntarily.
