7 Steps To Reduce Fiduciary Exposure
Though it sometimes seems that there are an infinite number of ways in which you can run afoul of fiduciary responsibilities, there are some relatively simple steps that could substantially minimize employers’ fiduciary risk.
An analysis by Randal Limbeck of Jackson Lewis PC offers the following tips:
1. Separate the employer functions from the fiduciary functions. Employer functions, also called settlor functions, are actions or decisions made by the employer as the employer — things like the decision to offer a plan, determining the benefit formula, eligibility rules and vesting. Settlor functions are not an exercise of fiduciary discretion and, therefore, not subject to ERISA fiduciary duties and standards — but a fiduciary making a settlor decision could transform that non-fiduciary action into a fiduciary action. Limbeck recommends that an employer that has a committee that performs both settlor/employer functions and fiduciary functions should hold separate meetings for each function — and avoid including design or settlor functions in administrative committee minutes where the administrative committee is the fiduciary for the plan.
2. Properly organize your plan’s fiduciary functions. Who is the plan administrator? Limbeck observes that it should be a committee, not the employer. But have those committee members been properly appointed? Have the committee members accepted their positions and status in writing? Who is listed as the plan administrator in the summary plan description?
3: Demonstrate fulfillment of fiduciary duties. Prudence is procedure, and the bottom line here is “document, document, document.” Committee minutes should reflect decisions and reasoning. Point out discussions, and set forth recommendation of investment advisors and other vendors. Oh, and retain documents used at meetings and meeting minutes.
4. Create a charter for the benefits committee. Limbeck says that charter should reflect the purpose, responsibilities and obligations of the committee, meeting procedures and who appoints and monitors committee members, among other things.
5. Properly manage your TPA and other vendor contracts. Do not allow your vendors to use a good faith or gross negligence standard. Limbeck says that you should require that your investment advisors agree to be fiduciaries.
6. Follow the plan’s claims and claims review procedures. Failure to follow claims review procedures can result in courts approving claims that otherwise would be denied. “When you deny a claim or claim review request, make sure that your denial has the required ERISA language in the response.”
7. Periodically read your plan and summary plan description (SPD).