OWNER BEWARE! I
f you are an owner in a private business, you know how critical a competitive retirement plan (Plan) is in order for you to recruit, retain and reward your employees. What you may not know is the fiduciary liability that your company (Plan Sponsor) incurs when you do offer a 401(k) or similar retirement plan. The last thing you want is to get tied up in court after having been sued by a current or former employee (Plan Participant) over the investment options or the administration of the plan. Even though you have expertise in your business, you may not have expertise in the Employee Retirement Income Security Act (ERISA) and how it and related regulation applies to you and your business partners. Let’s take a moment to identify some of your liabilities, and then we can discuss how to mitigate them. KEY LIABILITIES The Plan Sponsor has key fiduciary liabilities for both the administration of the retirement plan as well as for the investment options being offered. Let’s take a quick, broad look at these two categories. • ERISA Section 502 establishes certain monetary penalties for failures to distribute timely information to Plan Participants and beneficiaries, or to timely report required information to the Department of Labor as required of fiduciaries under ERISA Section 3(16). The list of required notifications is long and can be a challenge to stay on top of, and the penalties can be painfully punitive. Many of the penalties are formulaic and can be composed of a daily charge per Plan Participant in addition to a flat daily penalty.
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