WORKING WIH PLAN SPONSORS
PC
be taken.2 Similarly, a member is not liable for any fiduciary breach after ceasing to be a fiduciary. But any resigning fiduciary must ensure that someone else remains to take over said fiduciary duties. If one becomes aware of a breach and their only remedy is to resign, this could be considered a fiduciary breach.
Why form an Administrative Committee for your plan? Answers to these six questions will help answer that one. BY THOMAS R. BICK
F
Iiduciaries of a retirement plan have significant obligations as they manage plan assets and oversee day-to-day operations. ERISA requires all named fiduciaries to perform proper due diligence in every task. One very good way to address these fiduciary obligations is to create an Administrative Committee. A structured group of dedicated individuals will go far in “doing the right thing” for plan participants. Let’s take a look at some common questions regarding Administrative Committees. ARE ALL COMMITTEE MEMBERS CONSIDERED FIDUCIARIES?
Almost certainly. A person is a fiduciary to the extent they have any discretionary authority or responsibility in the administration or management of a plan or exercise any discretionary
52
authority or control with respect to the management or disposition of plan assets. Under this definition, committee members will be functioning as fiduciaries for purposes of ERISA. WHAT LIABILITIES DO COMMITTEE MEMBERS HAVE?
Section 409(a) of ERISA stipulates that all Committee members are personally liable for any act or omission during their tenure that violates fiduciary rules. However, section 409(b) also provides that a fiduciary shall not be liable with respect to a breach if it occurred prior to becoming a fiduciary.1 But members are not completely off the hook for prior actions. Each member has a duty to review investments, procedures, etc. If one becomes aware of any prior mistakes or problems, corrective action must
MONKEY BUSINESS IMAGES
Q&A: Administrative Committees
Actually, you should think of having two “prime directives.” Under ERISA, each fiduciary has a duty of loyalty to the participants. Every action taken must be for the exclusive benefit of participants and beneficiaries. A committee member who constantly asks, “Does this action exclusively benefit participants?” will be a long way down the road to doing a good job. If actions benefit anyone else, the committee and its members could be running afoul of the prohibited transaction or conflictof-interest rules. ERISA does not prohibit a fiduciary from also acting as a nonfiduciary in making company business decisions that are in the company’s favor. One can still can act as a company officer, employee or agent. But one must be careful that one’s actions don’t run counter to this first “prime directive.” The second “prime directive” is that a named fiduciary is required to exercise care, skill, prudence and diligence and conform to the “highest standards” as mandated by ERISA. Every fiduciary, and therefore every committee member, must have familiarity and expertise regarding the issue in question. If a fiduciary fails to have requisite expertise, outside expert assistance must be sought. Every fiduciary would be well served to remember a phrase contained within a 1982 court case involving a retirement plan committee sued by a plan participant. One judge wrote about the Administrative Committee, “a pure heart and an empty head are not good enough.”3
/ SHUTTERSTOCK.COM
WHAT IS A COMMITTEE MEMBER’S ‘PRIME DIRECTIVE’?
PLAN CONSULTANT | SPRING 2020
PC_SPG20_52-53_WorkingPlanSponsors.indd 52
3/12/20 10:30 AM