Are you a fiduciary?
Under Employee Retirement Income Security Act (ERISA), a “Fiduciary” is any person or group of people who:
• Has the power to execute discretionary authority or control respecting management of a plan subject to ERISA or management or disposition of its assets
• Renders or has authority or responsibility to render investment advice for a fee (direct or indirect)
• Has discretionary authority or responsibility in the administration of a plan
Some positions, such as plan administrator or trustee, may require any person who holds them to perform defined fiduciary functions and thereby undertake fiduciary status.
It is important to note that delegating fiduciary duties to a third party is, in itself, a fiduciary function. A fiduciary is required to undertake due diligence by fully vetting any service providers, and once a provider (or providers) is selected, monitoring the provider.
What are the duties of an ERISA fiduciary?
The four standards of conduct are:
1. A duty of loyalty
• To discharge their duties for the “exclusive purpose” of providing participants and beneficiaries with benefits
• To inform participants and beneficiaries of their rights
• To give complete and accurate information in response to participants’ questions, a duty that does not require the fiduciary to disclose its internal deliberations nor interfere with the substantive aspects of the bargaining process
• However, a fiduciary is not under any obligation to offer precise predictions about future changes to its plan
• A truthful statement made in good faith creates no breach of duty if participants misunderstand it
2. A duty of prudence
• To act “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”
• To “discharge duties with respect to a plan solely in the interests of the participants and beneficiaries”
3. A duty to diversify investments
• Fiduciary should consider the purpose of the plan; the size of the investment; the economic and market conditions; the type of investment; the geographic dispersion of investments; the investment distribution among industries; and the dates of maturity
4. A duty to follow plan documents to the extent that they comply with ERISA
Plan Checklist
To help in auditing your plan and avoiding liability, ask these questions in regards to the plan:
Plan Administration
Do you have an IRS-approved plan document?
Do you have a Summary Plan Description (SPD) updated for all plan design changes and distributed to all employees?
Do you have a documented file on IRS changes to regulations affecting retirement plans and how they may affect your employees’ plan?
Have you made a definite list of all the fiduciaries associated with the plan?
Have all named fiduciaries received training?
Does the plan cover the right employees and does not exclude any employees who may be entitled to participate in the plan?
Do you review the process for collecting employee contributions and loan repayments, forwarding them to the service provider and investing them in a timely manner?
Do you have a detailed analysis on file showing how you selected your current plan provider(s) and a comparison of other products you looked at during the selection process?
Do you conduct an annual review of all provider(s) and document the review?
Do you review fees of all provider(s), both direct and indirect, to ensure complete understanding of all costs and services associated with those fees?
Have you checked that the fidelity bond provides an appropriate coverage amount and that it covers fiduciaries and other employees, third parties and provider(s) involved with the plan? ERISA requires a minimum of $1,000 – a best practices amount is 10% of plan assets up to $500.000.
Do you have a comprehensive annual report of vital plan statistics, such as: participation rates, investment dispersion among asset classes, loans, distributions and customer service inquiries,as well as investment performance?
Plan Investments
Do you have a documented investment selection process, showing how investment options were originally chosen to be included in your employees’ plan?
Do you have an Investment Policy Statement, documenting due diligence criteria for evaluating the funds in your employees’ plan on an on-going basis?
oes the plan maintain a diversified investment line-up consistent with your investment Policy Statement?
Do you have a quarterly/annual investment due diligence report on file, showing you are fulfilling your fiduciary responsibility to monitor investment performance?
If the plan includes an automatic enrollment feature, have you confirmed that the default investment option is selected in a prudent process consistent with ERISA standards?
Participant Communications
Do you have a documented employee education and information strategy on file?
Do you have a resource available to employees to help guide them through investment decisions and other pertinent issues surrounding their plan?
Do you have regularly scheduled employee meetings to update participants of changes to the plan and investment options, as well as educate them on fundamental investment strategies, such as asset allocation?
To learn more, visit the Department of Labor website at www.dol.gov/ebsa.
Laws of specific state or laws relevant to a particular situation or pensions in general may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation.
All investments involve risk. This information is educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative or to provide legal, tax, estate planning or investment advice.
An investor should consider the fund’s investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund’s prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.ridgeworth.com. Please read the prospectus carefully before investing.
©2011 RidgeWorth Investments. RidgeWorth Investments is the trade name for RidgeWorth Capital Management, Inc., an investment advisor registered with the SEC and the advisor to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors LLC, which is not affiliated with the advisor.