Finance News & Insights

Fiduciary compliance: A 15-point checklist that covers all your bases

Between recent court verdicts against employers and the potential adoption of the DOL’s fiduciary rule, fiduciary compliance is more critical than ever. The steps in this strategy essentially guarantee you and your plan are in compliance.

At the 2017 Mid-Sized Retirement & Healthcare Plan Management Conference in Phoenix, Arizona, Ian S. Kopelman, a partner with the DLA Piper US LLP law firm, offered a simple, 15-step process employers of all stripes can take to ensure they’re fulfilling their fiduciary responsibilities:

Invaluable shortcuts

Here are the“15 Shortcuts to Fiduciary Compliance” that Kopelman outlined at the conference:

1. Prudence is paramount. As Kopelman put it, you don’t have to be right, you only have to be prudent, and prudence is a process. Employers must have a prudent process in place for evaluating their fiduciary duties — and apply that process consistently. Remember, according to ERISA’s prudent man rule:

“…[a] fiduciary shall discharge his duties with respect to a plan … with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

2. Plan operation rules should be in writing — and shouldn’t be overly complex. Fiduciaries must comply with all of these rules or they become the guarantor of the plan.

3. Each fiduciary’s responsibilities should be clearly defined. Kopelman reminds firms that plan fiduciary responsibilities should be “discrete” and everyone should know exactly what is and isn’t expected of him or her.

4. Settlor functions are a good thing. Because settlor functions — e.g., decisions regarding the establishment, amendment or termination of a plan — generally aren’t subject to ERISA’s fiduciary rules, Kopelman says the more, the better.

5. Service agreements should be in place for every outside vendor. These service agreements should spell out the vendor’s obligations and indemnify each fiduciary as well as the company for violations the vendor makes.

6. Delegate carefully. Under ERISA, any delegation of investment authority should only be passed on to a “qualified investment manager.”

7. Meet on a regular basis. Fiduciaries should meet periodically to discuss the plan decisions, and minutes of those meetings should be kept. Kopelman, however, cautions against being too detailed when it comes to documenting those minutes.

8. Let the third party make the initial call. If fees are being billed to the plan, let a third party make the initial recommendation about whether billing the plan for a particular fee is appropriate.

9. Ensure execs and employees understand their fiduciary capacities. When fiduciaries are also corporate officers or employees, it needs to be clear to both them and third parties when these fiduciaries are/aren’t operating within their fiduciary capacities.

10. Know what you’re paying — and what your service provider is getting. According to Kopelman, fiduciaries should try to know all the fees being received by third parties if the plan is paying all or part of those fees. After all, fiduciaries can’t conclude they are getting exactly what they pay for without this information.

11. Don’t make conflicted decisions. If a fiduciary is conflicted, he or she shouldn’t make decisions regarding the plan. Kopelman says each plan fiduciary should understand his or her rights and obligations to withdraw from any plan decision where there is a conflict.

12. Review the share class of your plan’s investment fund periodically. As Kopelman pointed out, not doing so resulted in major problems for the company in Tibble v. Edison.

13. Review your service provider’s performance. Revisit the decision to select/retain service providers for the plan as well as the time of the request for proposals (RFPs) that were made. George et al v. Kraft Foods Global, a 401(k) breach suit Kraft settled for $9.5 million, offers a real-life example of why this is so important.

14. Go over your service provider’s communications. Fiduciaries need to review the direct communications service providers have with plan participants because, if anything is lacking or inaccurate, the fiduciaries are ultimately responsible.

15. Double-check everything. Following the Supreme Court ruling (U.S. v. Windsor) that made the Defense of Marriage Act (DOMA) unconstitutional, Kopelman strongly urged employers to review their plans, plan rule and all relevant communications regarding that plan to ensure everything reflects the landmark ruling.

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