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As a Fiduciary, what responsibilities do I have and to what standard will I be held in choosing plan providers and making other plan decisions? ERISA § 404(a)(1) requires that a plan fiduciary discharge his duties with respect to an employee benefit plan solely in the interest of the plan's participants and beneficiaries. In the discharge of those duties, the fiduciary must act:
- For the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan;
- with the care, skill, prudence, and diligence, under the circumstances then prevailing, that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and like aims;
- by diversifying the investments of the plan to minimize the risk of large losses, unless, under the particular circumstances, it is clearly not prudent to do so;
- in accordance with the documents and instruments governing the plan to the extent that those documents and instruments are consistent with the provisions of ERISA ; and
- in compliance with court orders
The requirement that the fiduciary act “with the care, skill, prudence, and diligence, … that a prudent man acting in like capacity and familiar with such matters would use” is often referred to as the “Prudent Expert” rule. As a plan fiduciary you are expected to act with the skill and diligence of one familiar with these matters.
In its publication Meeting Your Fiduciary Responsibilities the Department of Labor (DOL) has stated that failure to do so would result in your being “personally liable to restore any losses to the plan”. Therefore, you should be very careful not to be a fiduciary with regards to any matters with which you are not familiar.
ERISA 402(b)(1) requires that “Every employee benefit plan …provide a procedure for establishing and carrying out a funding policy and method consistent with the objectives of the plan and the requirements …”
It is generally accepted that this requires an Investment Policy. DOL regulations on ERISA §404(a) emphasize the importance of preparing this policy. Please see enclosed article.
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