Employers and plan administrators who sponsor a retirement plan, a group health plan, or any employee plan subject to ERISA, are plan fiduciaries and have very specific fiduciary obligations. But fiduciary duties under ERISA are much more than their enumerated requirements. Plan fiduciaries need to understand this and embrace the mindset that is necessary for ultimate compliance.
Enumerated Fiduciary Duties
ERISA requires that plan fiduciaries carry out the duties described below. A “plan fiduciary” includes the employees of the employer who make decisions for the plan, and who have personal liability for those decisions.
All plan fiduciaries must:
- Run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses (Duty of Loyalty);
- Act prudently and diversify the plan’s investments in order to minimize the risk of large losses (Duty of Prudence);
- Follow the terms of plan documents to the extent that the plan terms are consistent with ERISA; and
- Avoid conflicts of interest. This means that plan fiduciaries must take care not to engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers or the plan sponsor.
These specified duties that apply to all fiduciaries of the plan have a significant amount of related guidance to spell out the details of what they mean, the minimum steps a fiduciary must take to meet these standards in specific situations, a set of guidelines that can be put into an administrative checklist. There are endless articles on how to meet these requirements. But fiduciaries need to take a step back and look at the intent and purpose of these duties in order to have the full understanding of what is required of them.
A Sacred Duty: More Than the Sum of the Parts
If you look at the listed duties above, one thing you will notice is that there is an element in all of them that rises above simple administrative requirements. The rules that apply to employee benefit plans are plentiful, in some cases specific and detailed and in other cases general, aspirational, open to multiple interpretations, or currently lacking in sufficient governmental guidance.
But the fiduciary duties of ERISA require those who administer employee benefit plans and the assets of those plans, to perform these duties with a higher intent, and to look at these duties as a compass as they make decisions and perform plan operations.
Both the words “fiduciary,” “duty,” “loyalty,” and “prudence,” contain an element of moral clarity and direction. When making decisions or handling plan assets, duties of loyalty and prudence cannot be captured with a checklist, they require a focus on the higher ideal: the sanctity of the care that plan fiduciaries are responsible for, and the trust that plan participants are putting in the hands of the plan’s fiduciaries.
Many situations arise where there is no specific published way to handle it. And a fiduciary can’t just shrug, wing it, and figure they have met their responsibilities because there was no specific guidance. In fact, this is really where the fiduciary duty kicks in, and the higher intent of the fiduciary’s directive becomes essential to guide the fiduciary in what to do.
Many plan fiduciaries don’t volunteer for this important role, they get the responsibility as part of their job. But they need to understand the duties they are taking on and take them seriously. This may sound “touchy-feely,” paternalistic, or even uncomfortable for plan fiduciaries that approach plan matters in the same way they handle other business responsibilities.
But it is important, and dare I say helpful, to remember that, at the end of the day, plan fiduciaries are making these decisions, managing these assets, for employees’ retirement income or health plan coverage, and that means each decision can impact people’s financial wellness and ability to retire when they are ready, or their very health.
While self-interest has no place in fiduciary decisions, the “Golden Rule” does: if you were a typical participant in the plan, what decision would you want the fiduciary to make in this situation?
So, all you plan fiduciaries, recognize the sacred duty that has been placed in your hands, set your moral compass accordingly, and don’t just focus on the checklist and call it a day.