ERISA CONSIDERATIONS IN CONNECTION WITH RECORDKEEPER CONSOLIDATION
AUTHORED BY - GROOM LAW GROUP
As in other competitive industries , the plan recordkeeping industry has been active with mergers and acquisitions . This means that a plan ’ s current recordkeeper could be acquired by another recordkeeper , which could result in a change in one of the most important service providers to the plan .
Plan fiduciaries faced with this situation should remember that they have a duty under the Employee Retirement Income Security Act of 1974 , as amended (“ ERISA ”), to ensure that the plan ’ s service providers are capable of providing necessary services to the plan at a reasonable cost . Thus , plan fiduciaries have a responsibility to undertake a prudent process to assess whether the acquiring recordkeeper is appropriate for the plan when compared to other available recordkeepers .
ERISA does not mandate any particular fiduciary procedure for evaluating plan recordkeepers . For example , if a plan ’ s fiduciaries have recently assessed the recordkeeping market and collected information on the capabilities and fee ranges of different recordkeepers , the plan fiduciaries may be able to evaluate the proposed recordkeeper change by supplementing their prior assessment through a request for information (“ RFI ”) or benchmarking process . In this regard , an advisor , consultant , or third-party administrator with a good understanding of the available recordkeeping services and fee ranges could provide valuable assistance . However , where a plan has not assessed the recordkeeping market for some time , or has undergone a significant change in terms of size or other metrics , the plan fiduciaries may conclude that a request for proposal (“ RFP ”) process would make sense . What is important is for the plan fiduciaries to undertake a prudent process that is appropriate for the plan .
WHAT ARE THE DUTIES IMPOSED BY ERISA ON PLAN FIDUCIARIES ?
ERISA requires plan fiduciaries to act “ with the care , skill , prudence , and diligence ” that a prudent person would use in a like circumstance with the purpose of “ defraying reasonable expenses of administering the plan .” 1 This procedural standard of care focuses on whether plan fiduciaries “ engaged in a reasoned decision-making process , consistent with that of a prudent man acting in like capacity .” 2
IS SELECTION AND MONITORING OF A PLAN RECORDKEEPER A FIDUCIARY ACT ?
ERISA defines a fiduciary in functional terms to include a person who has “ any discretionary authority or discretionary responsibility in the administration of [ the ] plan .” 3 Both U . S . Department of Labor (“ DOL ”) guidance and court cases confirm that the selection and monitoring of a plan service provider is a fiduciary act . 4 Thus , plan fiduciaries that have the decision-making authority over the plan ’ s selection of administrative service providers — such as a recordkeeper — will be acting as a fiduciary .
ERISA §§ 404 ( a )( 1 )( A ) and ( B ).
DiFelice v . U . S . Airways , Inc ., 497 F . 3d 410 , 420 ( 4th Cir . 2007 ).
ERISA § 3 ( 21 )( A ).
See , e . g ., DOL Field Assistance Bulleting 2002-3 ( Nov . 5 , 2002 ); Liss v . Smith , 991 F . Supp . 278 , 300 ( S . D . N . Y . 1998 ).