The Employee Retirement Income Security Act (ERISA) of 1974 is a federal law which protects individuals participating in retirement plans, such as 401(k), profit sharing and pension plans. ERISA compliance sets minimum guidelines and standards, aimed at protecting employees working in private sector industries.
Generally, an ERISA compliant retirement plan would include:
When a participant feels an administrator has not exercised proper fiduciary responsibilities, ERISA allows individuals to sue for breach of fiduciary duty.
Who are Employers?
Employers who provide retirement plans also carry a fiduciary responsibility because they are considered the plan’s sponsor. While retirement plans are generally provided by a third-party company, an employer still needs a trustee to maintain the daily operation or upkeep of a plan.
Sometimes the company owner will act as the trustee, other times, companies may delegate this responsibility to a human resources department or internal committee. Typically, someone with financial expertise should be appointed as a trustee.
What is Fiduciary Liability for Employers?
When sponsoring a retirement plan, employers have a responsibility to review the fees, investment choices or other plan-services to make sure employees receive the best plan at a fair cost. A company offering a plan with excessive fees or a poor investment portfolio may be at risk for lawsuits under ERISA. Furthermore, employers should also survey multiple potential providers before choosing a plan. This research and information should be documented to prove that an employer has made a thorough and meaningful effort to select the right plan for its employees.
Next, an employer’s fiduciary liability involves actively reviewing and updating the offered retirement plan with any changes that arise and notifying employees of those changes.
Who are Investment Advisers?
An investment adviser is any individual or group which makes financial recommendations in exchange for a fee. Investment advisers are fiduciaries, meaning they fulfill a responsibility to act in the best interests of their clients.
The Investment Advisers Act of 1940 was a response to the Great Depression. After reviewing investment trusts and companies, the Securities and Exchange Commission or (SEC) developed a report warning against bad or abusive investment advisers and calling for a way to regulate individuals or groups who provide investment advice.
Qualifying as an Investment Adviser
When determining who is considered an investment adviser, consider these three questions:
What Does Investment Advisor Fiduciary Liability Involve?
Investment advisers who have discretion or authority over another’s assets are potentially liable. According to the SEC, this includes providing full and accurate disclosure of information an investor would consider reasonably important. This also involves obvious duties, like not misleading clients, avoiding conflicts of interest, or using a client’s assets for the advisor’s own gain.
Who are Independent Trustees?
Virtually every qualified retirement plan has appointed a trustee. They are responsible for upholding the investments in the plan and acting in the best interests of participants. They make decisions on contributions, distributions, records, accounting, and eligibility. If any grievances are issued, they are typically notified first.
Trustees are appointed by the plan sponsor, usually the employer. Not all trustees are individuals, some are banks or insurance companies. For financial institutions acting as a trustee, they may take direction from the plan sponsor before making certain decisions.
What is Independent Trustee Fiduciary Liability?
In terms of retirement plans, independent trustees have duties to manage and administer a retirement plan in compliance with ERISA, including:
If a trustee does not comply with the responsibilities or obligations set by ERISA, the trustee is responsible for financial losses as a result of that breach. Additionally, the Department of Labor can impose a civil penalty depending on the outcome of a court settlement.
How Pension Lawyers Can Help with Fiduciary Liability Cases?
With more than 40 years of experience engaging in ERISA fiduciary liability cases, Pension Lawyers understands the complexities and intricacies involving retirement plans.
We represent plan Committees and fiduciaries with the administration of retirement plans.