Common Plan Fiduciar y Mistakes and Best Practices
Settler functions include plan design, plan amendment
or termination, and employee communications about
corporate issues.
provided. Failing to monitor fees for reasonableness
and negotiate fees with service providers can expose
fiduciaries to liability.
3. Failing to monitor appointed fiduciaries and service
providers leaves the appointing fiduciary exposed to
liability for actions of the appointed fiduciary. There
is a duty to monitor the activities of persons or entities
selected by the fiduciary to perform plan functions.
8. A fiduciary must use the level of care that a prudent
person familiar with such matters would use in the
same situation. If relying on experts, experts must be
selected prudently, be fully informed of all relevant
facts, and advice should be updated.
4. Failing to document reasons behind decisions made
and actions taken creates unneeded risk.
Failing to follow advice of investment consultant could
be considered as failing to use the level of care necessary.
It should be carefully documented if the fiduciary decides
on another course of action.
A fiduciary’s conduct is evaluated according to the
result of a decision as well as the process used to make
the decision. Procedural prudence means:
•
Identifying factors relevant to decisionmaking process
•
Identify necessary fact-finding steps and
background information
•
Identify required expertise; when necessary,
consult with outside experts (e.g., accountant,
actuary, legal counsel)
Plan Fiduciary Best Practices
Despite these common failures, there are a number of
fiduciary best practices that will reduce risk. These practices
can be implemented and maintained with little additional
effort by plan fiduciaries. These best practices are:
1. Know standards, laws, plan, and trust provisions
2. Establish a Committee Charter, detailing rules and
obligations
•
Evaluate relevant criteria
3. Diversify assets to specific risk/return profile
•
Document the decision and the process
4. Prepare/review investment policy statement
If it isn’t documented, it didn’t happen! At least you
can’t approve it.
5. Failing to Conduct Fiduciary Training isn’t acceptable.
The Department of Labor has indicated that fiduciaries
should take part in regular training to improve their
skills, and the training should be documented.
6. Fiduciaries have a road map to follow in the form of a
Plan’s Governing Documents, including its Investment
Policy Statement. Failing to follow the terms of these
documents is a clear violation of fiduciary duties.
7. Fees paid from plan assets directly reduce the benefits
or security for plan participants. There probably have
been more law suits regarding excessive fees in recent
years than for any other reason. Section 408(b)(2)
requires fees to be disclosed, and plan fiduciaries to
determine if those fees are reasonable for the services
5. Use “prudent experts” and document due diligence
6. Control and account for plan/investment expenses
7. Monitor the activities of “prudent experts”
8. Avoid conflicts of interest and prohibited transactions
9. Hold regular Plan committee meetings
10. Engage in fiduciary education and training
11. Document, Document, Document!
Take the time to review your current practices against
these best practices. Begin by auditing your activities and
documentation for compliance with these best practices.
Then an action plan can be prepared that will result in a
reduction of your potential liability. n
www.conferomag.com | 17