Fiduciary responsibility under the Employee Retirement Income Security Act (ERISA) is a concept that remains vague or even threatening for many HR professionals, according to Sheldon J. Blumling, a partner with the Irvine, Calif., law firm of Fisher & Phillips LLP. In his June 27, 2011 SHRM Annual Conference session “ERISA Fiduciary Obligations: How to Protect Yourself, Your Boss and the Company,” Blumling outlined what HR professionals need to know about managing ERISA benefit plans, which, along with retirement plans, include group health and welfare plans as well as many employee assistance programs (EAPs), wellness programs and even severance plans.
“In a nutshell, a fiduciary relationship is when one person has an obligation to act for another’s benefit. The obligation of an ERISA fiduciary is to act for the benefit of plan participants and beneficiaries—not for themselves and not for the company,” Blumling told those attending the Society for Human Resource Management’s (SHRM) 63rd Annual Conference & Exposition in Las Vegas.
“Many HR professionals are ERISA fiduciaries and don’t know it,” Blumling pointed out. That can be a perilous situation.
Who Is a Fiduciary?
Under ERISA, a fiduciary is anyone who has or exercises discretionary authority or discretionary control in the administration of an ERISA employee benefit plan. This is not limited to those who are named fiduciaries in plan documents. “It’s what you do, not what your title is,” Blumling noted. “Actual authority and actions are more important than titles.”
Fiduciaries are held to the “prudent man standard of care,” which means they are charged with carrying out duties in a prudent manner applicable to the situation at hand. This includes ensuring that plan expenses are reasonable.
What exactly is “prudent” and “reasonable” are sometimes left for a court to decide.
As an example, if a employer hires a 401(k) service provider that charges higher fees to participants but gives the company a lower-than-market line of credit in return, that would be a violation of fiduciary responsibility.
“HR typically wears both a ‘business hat’ and a ‘fiduciary hat,’ ” Blumling noted. “It’s important to recognize which hat you are wearing when taking actions and making decisions.”
Civil penalties imposed by ERISA for fiduciary breaches can be severe, including fines of up to 100 percent of the money involved.
Significantly, fiduciaries can be sued by employees. They are responsible for plan decisions even if, for example, they missed the retirement committee meeting where the decision was made, because ERISA imposes joint liability for breaches by other plan fiduciaries,” Blumling explained. “The bottom line is, everyone gets sued.”
Fiduciaries can be sued by other fiduciaries, by the U.S. Department of Labor, and by plaintiffs’ lawyers “who are always looking for the next big thing in class-action suits,” Blumling said. Currently, he noted, suits over excessive fees and “stock drop” suits, where company stock in the plan falls in value, are big with the plaintiffs’ bar.
Fortunately, fiduciaries can take steps to avoid breaches. “You must understand expenses and ensure they’re reasonable,” Blumling advised. One way to do so: carrying out vendor requests for proposals (RFPs) periodically, such as every three years. “Doing RFPs helps ensure that the vendor expenses the plan is paying are reasonable for a given market,” he explained.
Other steps include:
Conduct fiduciary education/training.
Dust off plan documents and be sure they are consistent with plan operation.
Seek independent investment advice for retirement plan assets and follow it.
Find out who is involved in plan administration. If administrators have fiduciary responsibilities, make sure they know it and understand what it means.
Document, document, document. Documentation, including minutes for committee meetings and fiduciary education/training, supports that the standard of care was met.
Purchase ERISA fidelity bonds that cover theft of assets and fiduciary liability insurance for all plan fiduciaries.
Regularly monitor plan vendors and investments, and understand and monitor plan expenses and vendor contracts.
When it comes to ERISA, “The devil is in the details,” Blumling said. “But understanding ERISA obligations—to put the interests of participants and beneficiaries first—can help fiduciaries steer through the details.”
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Fiduciary Decisions and the Fee Transparency Movement, SHRM Online Benefits Discipline, May 2011
Prohibited Benefit Plan Transactions Really Are Taboo, SHRM Online Benefits Discipline, April 2011
DOL's Proposed Definition of 'Fiduciary' Draws Fire, Support, SHRM Online Benefits Discipline, February 2011
What Is a Fiduciary, SHRM HR Q&As, December 2010
Fiduciaries Can Avoid Becoming Defendants, SHRM Online Benefits Discipline, June 2010
Retirement Plan Sponsors Unclear on 'Fiduciary Responsibility,' SHRM Online Benefits Discipline, February 2010