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QUALIFYING FOR PROTECTION FROM FIDUCIARY PERSONAL LIABILITY

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In order to qualify for protection from Fiduciary personal liability and minimize exposure to that liability, there are more than 30 duties and responsibilities to be performed.  To begin, it is important to keep in mind the following three things:

 

  1. Basic fiduciary duties are:
  • LOYALTY
  • PRUDENCE
  • DILIGENCE
  • Pay only REASONALBE FEES and EXPENSES out of plan assets IN LIGHT OF the SCOPE and QUALITY of SERVICES RENDERED (cheapest is usually considered with skepticism and is generally shown to be imprudent)
  • Follow provisions in plan documents unless imprudent to do so in light of rules of ERISA

 

  1. All fiduciary actions and decisions require written documentation and proof of performance according to an objective and deliberative process and procedure in arriving at any fiduciary decision.

 

  1. The principles of PROCEDURAL PRUDENCE and SUBSTANTIVE PRUDENCE must be demonstrated as governing the actions of plan fiduciaries.

 

According to Dept. of Labor (DOL) regulations, the Employee Retirement Income Security Act of 1974 Statute (ERISA), Internal Revenue Service (IRS) code sections (IRC) on prohibited transactions, and relevant court decisions, the following are the numerous fiduciary duties and responsibilities that need to be performed in order to qualify for minimizing a fiduciary’s exposure to fiduciary personal liability.  The assumption is for a plan permitting participant-directed investments and electing 404(c) protections:

 

  1. Surety Bond indemnification requirements
  2. Internal controls established to minimize administrative errors and detect fraud.
  3. 404(c) Notices and Disclosures provided initially and periodically:
  • 404(c) election
  • ERISA 404(c) Notice
  • QDIA Notice (Qualified Default Investment Alternative)
  • Diversification Notice
  1. Notices and Disclosures upon a participant attaining eligibility:
    • Summary Plan Description (SPD)
    • QDIA Notice
  2. Select plan investment menu – Due Diligence
  3. Periodic monitoring of investments for continued suitability
  4. Select plan service provider(s)
  5. Periodic monitoring of service provider(s) for continued suitability
  6. Select plan expert ERISA advisor
  7. Periodic monitoring of expert ERISA advisor for continued suitability
  8. Diversify investments – – Asset class representation
  9. 408(b)(2) fee Notice to plan sponsor and evaluation and determination of reasonableness (Duty to Ask)
  10. 404 (a)(5) fee Notice to participants and beneficiaries
  11. Add/Delete/Replace investment offerings – – Due Diligence
  12. Invest only in assets that are within the jurisdiction and reach of the U.S. District Courts.
  13. Provider Agreements for all covered providers
  14. Select a QDIA – – Due Diligence
  15. Periodically benchmark fees paid from plan assets and recover excess fees with diligence and by utilizing a prudent process – – only pay reasonable fees
  16. Timely remit participant deferrals, and loan repayments
  17. Operate the plan in accordance with plan document provisions:
  • Trust Document plus Amendments
  • SPD and Summary of Material Modifications (SMM)
  • Investment Policy Statement (IPS)
  1. File all reports to regulators – – DOL, IRS
  2. No “Discrimination in Operation” – – Non-Discrimination Testing and Internal Controls and Mock-Audits
  3. Duty to provide participant and beneficiaries sufficient information about the plan, plan fees and expenses, investments, glossary of terms, and provide necessary resources so that participants and beneficiaries can make informed decisions about management of their accounts, and take “control” of their accounts.
  4. Provide periodic account statements to participants and beneficiaries about their accounts
  5. Provide to terminated participants a written explanation of distribution options, benefits of keeping assets in the plan and tax consequences of each option.
  6. Make fiduciary decisions by utilizing a documented and prudent methodology and process for each fiduciary decision.
  7. Due Diligence on rollovers to and from the plan to assure the “Best Interest” standard
  8. Due Diligence on plan provider compensation for advice, services, and recommendations to ensure no Conflict of Interest under DOL Fiduciary Rule, and either eliminate of successfully manage any conflict of interest
  9. Follow all investment instructions given by plan participants and beneficiaries and provide confirmation of completion
  10. Avoid all prohibited transactions (IRC)
  11. Comply with all provisions of ERISA Section 404(c), not just some (ENRON CASE)
  12. Additional responsibilities and duties as necessary:
  • Safe-Harbor Notices
  • Blackout Notice
  • Look-Through investments
  • Assuring Universal Access to all benefits
  • Fiduciary Education class certification for fiduciaries (this is now being requested in DOL audits)
  • Prepare Investment Policy Statement (IPS) and follow-up reviews of IPS document
  • Locate missing terminated participants
  • Notice of request for IRS Determination Letter
  • Watch List procedure for underperforming investments
  • Respond timely to participant request for plan documents and additional plan information
  • Auto-enroll Notice and Auto-escalation Notice
  • QDRO administration and record keeping
  • Monitoring procedures for participant loans and maintaining adequate security and reasonable interest and maintain records
  • Monitor Hardship distribution requests, qualifications, decisions, and keep records
  • Maintain permanent records:
    • Plan Document and Amendments
    • Adoption Agreement
    • Adopting Resolutions
    • SPD and SMM
    • IPS
    • Determination Letter and supporting documents
    • 5500 series filing and schedules
    • Internal controls
    • Minutes of all discussions of fiduciary decisions

 

Armenti Planning Company does the actual procedures and complies with “Procedural Prudence” and “Substantive Prudence” and has written documentation for having done all for the plan sponsor.

 

 

 

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