Compliance Reminder
ERISA is a complex federal law, and employers should always seek guidance from qualified ERISA counsel when applying these rules to their own benefit plans. This content is provided for informational purposes only and does not constitute legal advice.
Overview
ERISA sets strict standards for anyone who exercises discretion or control over a benefit plan or its assets. These individuals are called fiduciaries.
Fiduciaries have a legal obligation to act solely in the best interest of plan participants and beneficiaries, and they can be held personally liable for failing to meet these duties.
In an employer-sponsored benefit plan, fiduciary responsibilities typically apply to those who:
- Make decisions about plan design, funding, or administration.
- Interpret plan provisions or resolve claims.
- Have authority to hire or monitor service providers.
Plan sponsors (the employer), plan administrators, and sometimes HR staff or internal benefits committees may all have fiduciary status under ERISA.
Who Is a Fiduciary Under ERISA
A person is a fiduciary to the extent they:
- Exercise discretion over plan management or plan assets.
- Render investment advice for a fee or other compensation.
- Have discretionary authority or responsibility in the plan’s administration.
Title alone does not determine fiduciary status. Even if a person is not formally named as a fiduciary, they can be deemed one if they act in a way that meets these criteria.
Conversely, some functions – like performing clerical tasks or processing enrollment forms – do not create fiduciary status.
Core Fiduciary Duties
ERISA defines three key fiduciary standards that guide every decision made on behalf of a benefit plan:
- Duty of Loyalty
Fiduciaries must act solely in the interest of plan participants and beneficiaries, with the exclusive purpose of providing benefits and defraying reasonable plan expenses.
They cannot place the employer’s business interests or personal preferences ahead of the participants’ best interests.
- Duty of Prudence
Fiduciaries must act with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use under similar circumstances.
In practice, this means making informed decisions, relying on expert guidance when appropriate, and documenting the decision-making process. - Duty to Follow Plan Terms
Fiduciaries must administer the plan according to its governing documents, including the Plan Document, SPD, and any Wrap materials – as long as those terms are consistent with ERISA and other applicable laws.
Failure to follow the written plan or apply its rules uniformly is one of the most common fiduciary violations.
How Plan Documentation Reduces Fiduciary Risk
Having clear, compliant, and current plan documents is one of the best protections against fiduciary exposure.
Written documentation ensures that:
- Decisions are made according to established procedures, not informal practices.
- Eligibility and benefit rules are applied consistently to all participants.
- Fiduciaries can demonstrate compliance if audited or challenged.
Good documentation supports good governance – it defines the rules, limits discretion, and protects fiduciaries who act in good faith.
Who Is Not a Fiduciary
Certain roles are typically not fiduciaries under ERISA, such as:
- Insurance carriers providing fully insured benefits (they are plan service providers, not plan fiduciaries).
- Third-Party Administrators (TPAs) that handle day-to-day processing without discretionary authority.
- Brokers and consultants who provide education or administrative assistance but do not make plan decisions.
Important: Brokers, agents, and consultants should avoid performing or appearing to perform discretionary fiduciary functions. They should encourage employers to seek ERISA counsel for fiduciary advice or decisions that involve plan interpretation, claims adjudication, or investment oversight.
Fiduciary Liability and Enforcement
Fiduciaries who breach their duties can face significant consequences, including:
- Personal liability for any losses to the plan resulting from their actions.
- Civil penalties assessed by the Department of Labor (DOL).
- Restitution or removal from fiduciary roles in serious cases.
Employers can help reduce risk by:
- Identifying all individuals or committees with fiduciary responsibility.
- Maintaining written procedures for decision-making and documentation.
- Reviewing plan documents regularly and ensuring compliance with ERISA and IRS regulations.
Key Takeaway
Fiduciary responsibility is one of ERISA’s cornerstones.
Anyone who exercises discretion over plan management or administration must act solely in the best interest of participants, follow plan terms, and act with care and prudence.
Proper documentation, consistent administration, and clear delegation of responsibilities are the employer’s best tools for reducing fiduciary risk and ensuring compliance