Jan 26, 201503:24 PMThe Bottom Line
with contributors from Associated Bank
How to manage fiduciary responsibility as an HR professional
(page 1 of 2)
Growing regulatory complexity, scrutiny on compliance, and litigation cases have made it increasingly challenging to administer and manage qualified retirement plans. Additionally, the Employee Retirement Income Security Act of 1974 (ERISA) has set forth rules to ensure the protection of plan participants’ rights. For HR managers and their organizations, falling short of these could mean corporate and personal liability.
While this regulatory environment may be intimidating, it is critical for HR managers and their organizations to ensure that the fiduciary obligations of retirement plans are met. The first step is to choose the appropriate trustee structure. There are two options: manage the retirement plan yourself or enlist the help of an external partner.
Think you’re ready to manage your company’s retirement plan? Before making this important decision, make sure you fully understand the role of a trustee. Evaluate the details of your plan, review the associated fiduciary responsibilities, and familiarize yourself with relevant ERISA guidelines.
Consider that plan fiduciaries generally have six primary responsibilities:
- Act solely in the interest of plan participants and their beneficiaries.
- Manage the plan in a prudent fashion.
- Select and monitor a diversified mix of investment choices for the plan.
- Make sure that plan expenses paid by the plan sponsor and participants are reasonable.
- Comply with the written plan document, ensuring it is consistent with ERISA.
- Avoid breaches of fiduciary duty, conflicts of interest, and prohibited transactions.
As a self-trustee, you will assume all fiduciary responsibility, including administration of the retirement plan and the selection and monitoring of related investments. The biggest advantage of a self-trusteed plan is total control with respect to all plan decisions, but that level of control could also be your greatest liability, as all fiduciary responsibility rests within the sponsoring organization.
HR managers looking to stay involved in retirement plan management, but also looking for additional guidance, can choose to partner with a bank affiliate, insurance company, or other financial institution that offers directed trustee services. This option is an attractive middle ground for many plan sponsors, as it offers strategic financial counsel while managing the cost of fiduciary responsibility.
A directed trustee does not make investment decisions, instead acting only on directions given by HR management, a plan investment committee, or another responsible and qualified plan advisor. The advisor’s primary responsibility is to provide counsel and recommendations. Keep in mind that since some, but not all, of the remaining fiduciary responsibilities may be delegated contractually to the directed trustee, fiduciary responsibility — and liability — for the actual selection of the investments would remain in your court.
Some HR departments may not have the time, knowledge, or resources to internally manage their companies’ retirement plan assets. If this is the case, you can choose to outsource components of retirement plan management and hire a discretionary trustee. Unlike a directed trustee, a discretionary trustee takes full responsibility for managing the plan’s investments on an ongoing basis. HR managers, and their organizations, are responsible for selection and oversight of the discretionary trustee to ensure appropriateness of their actions. While the use of a discretionary trustee does not completely release HR managers from fiduciary responsibility, with respect to the management of the plan’s assets, this relationship represents the highest level of liability transfer possible under ERISA guidelines.