The ultimate responsibility for the administration and operation of an employee benefit plan subject to ERISA is the plan administrator. This means it is vital to understand who is the plan administrator, what are the plan administrator’s duties and powers, what is and is not possible to delegate to others.
Who Is the “Plan Administrator”?
ERISA requires that every employer plan have a “plan administrator.” This can be a confusing term to employers who often will engage a third-party administrator to perform many of the operational duties of the plan, such as annual testing, Form 5500 preparation, participant services, and so on. Under ERISA, the plan administrator is defined as the person who is designated as such in the plan document, with the default being the plan sponsor (e.g., the employer).
While a third-party administrator or an individual could be designated as the ERISA plan administrator by specifying this in the official plan document, it is very rare for this to happen. The reason is that the duties of a plan administrator are quite broad, including ultimate fiduciary responsibility for the plan. Third-party administrators and individuals are generally not in a position to take on the sweeping responsibilities, and liability, of a plan administrator and will not be willing to agree to do so. The plan administrator is a named fiduciary of the plan.
Where the employer is the plan administrator, which is the most common situation, the board of directors has the authority to act on behalf of the employer and therefore the authority and duties of the plan administrator will rest with that body. Ideally, the employer will delegate the responsibility and power of the plan administrator to a committee set up to oversee the plan’s administration. This can be done either directly in the plan document, or through a delegation by the board to the committee.
What are the Duties of a Plan Administrator?
As the title suggests, plan administrators are responsible for management of the plan. This means, at the very least, ensuring that—
- The plan is administered in compliance with its terms as described in the plan document. This requires a familiarity with the terms of the plan as well as attention to how the plan is being administered. The plan administrator should consult with legal counsel if clarity is needed.
- The plan is updated and administered consistent with changes in law. This requires that the plan administrator stay informed of those changes and the requirements for operational changes and amendments that go along with them.
- The plan investment options are prudent and in the best interests of the participants. While a participant-directed retirement plan meeting the requirements of Code Section 404(c) will protect the plan administrator from liability for the losses resulting from the participant’s investment choice, the plan administrator is still responsible for selecting prudent investment options for the participant to choose from.
- Plan assets and participant information is safeguarded, with a growing emphasis on cybersecurity.
- Required filings and participant disclosures are carried out, such as Form 5500 filings, including independent audits (if applicable), distribution of summary annual reports, summary of material modifications, summary plan descriptions, safe harbor notices (if applicable), and qualified designated investment alternative notices.
- Deferrals and loan payments are timely deposited.
- Ensuring that distributions are processed accurately and timely.
- Service providers are regularly monitored for the quality of their services and their fees evaluated for reasonableness. This will require periodic requests for proposal (aka an “RFP”) to compare the marketplace of services and costs.
- Current and historical plan documents and other records are maintained and accessible. Reliance on the third-party administrator for record retention is not sufficient or advised. See our blog post on this issue here.
- All needed corrections are carried out as soon as possible once identified, including qualification failures and prohibited transactions. Consultation with legal counsel regarding the sufficiency of the corrections is advised.
This is not an exhaustive list of what a plan administrator’s duties entail, but as you can see, it is expansive in scope and includes complex and diverse responsibilities.
Can Some Plan Administrator Duties Be Delegated?
A typical employer will not have the bandwidth or expertise to carefully and knowingly carry out all of these tasks, so can some of this be delegated to other parties? Absolutely—to a certain extent. As mentioned above, a committee is often delegated some or all of the duties and powers of the plan administrator. In delegating to a committee, a board of directors may decide to limit the powers of the committee to decisions which don’t result in significant cost increases, or changes to plan provisions, or they can give the committee all of the powers including the authority to sign plan amendments and restatements, decide discretionary contribution amounts, approve corrections, and so forth.
Employers frequently delegate certain frontline responsibilities and authority to individuals within the company, such as human resource personnel. These individuals will carry out tasks like enrollment, employee communications and assistance, gathering of census information, coordination with service providers, and payroll functions related to the benefit plan. While important to the administration of the plan, these individuals generally have limited authority over the plan and may not even act as a fiduciary of the plan.
In addition, where the performance of duties is not within the plan administrator’s expertise, the hiring of seasoned service providers is not just permissible, but prudent and necessary. Such service providers include third-party administrators, recordkeepers, corporate trustees, and investment advisors. But contrary to a frequent misconception, delegating the day-to-day administration to a service provider does NOT relieve the employer of its duties as plan administrator; under ERISA, the employer still has the ultimate responsibility for delegated tasks. Practically speaking, this means that the employer must carefully select and constantly monitor the service providers with which it contracts. While a failure of a contracted service provider may have some financial recourse under the terms of the services agreement, the employer remains responsible for making the plan whole and ensuring that it meets all of the qualification and fiduciary requirements of the Internal Revenue Code and ERISA.
What is an Employer to Do?
The takeaway is that employers should not become complacent and assume that they have contracted out all responsibility for the administration of their ERISA plans. There are ways of mitigating some of the liability (contractually, insurance) but ultimate responsibility and liability remain with the ERISA plan administrator.