Plan investment committee members come in all shapes and sizes, sometimes drawn exclusively from staff of the employer sponsoring the plan, sometimes not. More importantly, they are frequently tapped for this important role for reasons that may have little to do with their background or expertise in the matters that will come before the committee.
Now, with luck they’ll learn early on about the requirement to act solely in the interests of plan participants and beneficiaries, the importance of process (and documenting that process) and the implications of the prudent expert rule.
But as important as those considerations are, there are some important things that every plan committee member should know before they sit down at their first committee meeting.
You are an ERISA fiduciary. Even as a small and relatively silent member of the committee, you’ll direct and influence retirement plan money — and it’s that influence over the plan’s assets that makes you an ERISA fiduciary.
As an ERISA fiduciary, your liability is personal. How personal? Well, you may be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. You can obtain insurance to protect against that personal liability — but that’s probably not the fiduciary liability insurance you may already have in place, or the fidelity bond that is often carried to protect the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. If you’re not sure what you have, find out. Today.
You are responsible for the actions of other plan fiduciaries. All fiduciaries have potential liability for the actions of their co-fiduciaries. For example, the Department of Labor notes that if a
fiduciary knowingly participates in another fiduciary’s breach of responsibility, conceals the breach, or does not act to correct it, that fiduciary is liable as well. So, it’s a good idea to know who your co-fiduciaries are—and to keep an eye on what they do, and are permitted to do.
Having established those basics, as an ERISA fiduciary, you are expected to act solely in the interests of plan participants and their beneficiaries, and with the exclusive purpose of providing benefits to them; to carry out those duties prudently (and by prudent, it is intended that you be a prudent expert); to follow the terms of the plan documents (unless inconsistent with ERISA); to diversify plan investments (specifically with an eye toward minimizing the risk of large investment losses to the plan); and to ensure that the plan pays only reasonable plan expenses for the services it engages.
A couple of additional points on fulfilling those duties; it’s going to be hard to follow the terms of the plan documents if you haven’t read them, and it’s likely to be difficult to ensure that the plan pays only reasonable expenses if you don’t know what the plan is paying, or for what.
And finally, should you, as a plan fiduciary lack the expertise to carry out those duties, you will, of course, want to hire someone with that professional knowledge to carry out the investment and other functions.
Additional information on fiduciary responsibilities can be found here.
- Nevin E. Adams, JD