ERISA Fiduciary Responsibilities

Selecting and Monitoring Service Providers
Plan fiduciaries must carry out their duties with the care, skill,
prudence and diligence of a prudent person familiar with the matter and
acting under similar circumstances. Competent outside advisors can be
engaged who possess the expertise and experience in performing the
required duties such as third-party administrators. However, the plan
fiduciary's obligations do not end with the selection of a competent
service provider because ERISA imposes an ongoing duty to monitor the
provider with reasonable diligence.

A formal review process should be established and followed at reasonable
intervals to monitor the provider's performance. Details of these periodic
reviews should be documented in writing.

Selecting and Monitoring of Investments
ERISA imposes the requirement that plan fiduciaries invest the assets of a
qualified retirement plan in a prudent manner with proper diversification
to minimize the risk of substantial loss.

If a fiduciary does not have the necessary investment expertise, an
outside trustee or investment manager should be hired to explicitly take
on this responsibility. However, fiduciaries must exercise prudence in
selecting an appropriate investment manager and have a responsibility to
review performance as well as the fees associated with the investments on
an ongoing basis.

Establishing prudent and diligent written investment policies solely in
the interest of participants and beneficiaries can significantly reduce
exposure to fiduciary liability.

Investment Policy Statement
An Investment Policy Statement (IPS) is a written document that provides
the plan fiduciaries responsible for plan investments with guidelines for
selecting, reviewing and changing the plan's investments. Although ERISA
does not specifically require an IPS, it is one of the first things that
the Department of Labor will ask to see when it audits a plan and will
want proof that it was followed.

The IPS is essential in providing the framework for selection of
appropriate investments or, in the case of participant-directed retirement
plans, the selection of investment alternatives. It also serves as a
yardstick for evaluating and monitoring performance and can provide
important documentation that demonstrates the fiduciaries are meeting
their fiduciary responsibilities.

Investments (or investment alternatives) should be monitored, at the very
least, on an annual basis to ensure that they continue to be appropriate
choices. A detailed file, including notes from meetings as well as any
reports evaluating investments, will be helpful if a fiduciary ever is
required to defend his decisions.

Participant Directed Accounts
Under ERISA section 404(c), plan fiduciaries may be relieved of fiduciary
liability for investment choices made by participants if the plan
satisfies certain requirements.

Many employers are under the misconception that if their plans are
designed to comply with ERISA section 404(c) safe harbor requirements,
they have no fiduciary liability. Unfortunately, this is not the case
since the plan fiduciaries are still liable for selecting and monitoring
the investment alternatives that are made available under the plan.

Poor investment performance is not necessarily a breach of fiduciary
responsibility. On the other hand, offering participants investment
choices that consistently perform well below their peers may be.

Paying Reasonable Expenses
Plan expenses can generally be paid from the plan assets as long as they
are prudent and reasonable and permitted by the plan document. Since these
fees directly affect participants' account balances in defined
contribution plans, fiduciaries need to continually monitor plan expenses
to ensure that they are reasonable in light of the services provided.

Plan Administration and Compliance
While plan investments are at the heart of fiduciary responsibilities, in
practice plan fiduciaries more often run afoul of ERISA's other
administrative and compliance requirements described below.

Following the Plan Documents
ERISA requires a qualified plan to have a written plan document. From time
to time plan amendments are needed due to legislative changes and should
be adopted promptly.

Fiduciaries are responsible for overseeing the administration of the plan.
They must understand the provisions defined in the plan document and
monitor compliance with those requirements including the following
functions:

  a.. Verifying that the plan covers the right employees or does not
exclude employees who may be entitled to participate in the plan;
  b.. Depositing and investing employee contributions and loan repayments
in a timely manner;
  c.. Paying plan benefits;
  d.. Making plan loans; and
  e.. Ensuring the plan is in compliance with applicable compliance testing.
Participant Communications
Fiduciaries must ensure that plan participants and beneficiaries receive
adequate information regarding the plan including:

  a.. Summary Plan Description;
  b.. Summary of Material Modifications;
  c.. Individual benefit statements;
  d.. Summary Annual Report;
  e.. Blackout period notice (if applicable); and
  f.. Automatic enrollment notice (if applicable).
Government Reporting
Plan administrators generally are required to file a Form 5500 with the
government each year which includes information regarding the plan's
financial condition, number of participants, fees paid to service
providers, etc. For larger plans an accountant's report is necessary.
Penalties apply for failure to file these forms in a timely manner.

Bonding
As an additional protection for plans, those who handle plan funds
generally must be covered by a fidelity bond which is a type of insurance
that protects the plan against loss resulting from fraudulent or dishonest
acts of those covered by the bond. In general, the bond must be at least
10% of the value of the plan assets but not more than $500,000. Certain
types of plan investments may increase bonding requirements.

Since the bond does not protect fiduciaries to the extent claims are made
against them for breaches of fiduciary duty, a separate fiduciary
liability insurance policy should be considered as added protection.

Conclusion
Don't put your personal assets at risk. Determine if you are considered an
ERISA fiduciary and make sure you understand your duties. Courts have held
plan fiduciaries who were completely ignorant of their fiduciary
responsibilities personally liable to restore plan losses for breaching
their fiduciary duties of prudently investing the plan assets.

Fiduciary duties are numerous and complex. Fortunately, fiduciaries can
seek guidance from competent, experienced outside advisors who have
experience with these complex rules. Procedures should be in place for
evaluating and monitoring these service providers on an ongoing basis.

Having an IPS will greatly reduce the risk of ERISA fiduciary liability as
long as it is correctly drafted, implemented and followed. In addition,
fiduciary insurance should be considered to provide added protection in
case of fiduciary breach.


This information was provided by: Acuff & Associates'

Anytime you'd like to discuss any of our e-newsletter topics or any other
retirement plan issue or prospect, please call your Acuff & Associates'
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The information contained in this newsletter is intended to provide
general information on matters of interest in the area of qualified
retirement plans and is provided with the understanding that our company
is not engaged in rendering legal or tax advice. Legal or tax questions
should always be referred to a qualified tax advisor such as an attorney
or CPA.

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