Guest Article Using a Fiduciary Charter as the Framework for Your Plan OperationsBy Robert J. Higgins, JD CEBS AIFA. Mr. Higgins is a Senior Fiduciary Consultant with the firm Benefit Plans Plus, LLC of St. Louis, MO. He may be reached at 314.983.1200 or rhiggins@bpp401k.com. Ignorance Is No Defense Recently we've been inundated with stories of fiduciary breaches at publicly traded companies. I'll avoid naming the usual suspects, but the plot usually involves dastardly corporate officers, motivated by greed, intentionally cheating the Board of Directors, shareholders and plan participants. While this may sometimes be the case, it's more likely that many fiduciary breaches have occurred simply because of ignorance or neglect. Individuals sometimes don't know they are acting as fiduciaries under the Employee Retirement Income Security Act (ERISA). Even those who have been formally appointed often have no concept of what their duties entail or how to fulfill them. In a September, 2004 article in PLANSPONSOR magazine, Secretary of Labor Elaine Chao wrote, "In many instances, however, there simply isn't a clear understanding of what makes someone a fiduciary, and what the fiduciary's legal obligations are. Executives today need to find out what fiduciary responsibilities they may have for their employees' various benefits plans, and then make certain they are fulfilling those serious responsibilities. The assignment of fiduciary responsibilities is spelled out in benefit plan documents. Adding to the complexity, however, a fiduciary relationship may be legally inferred from circumstances." This quote should be disconcerting to corporate officers, especially that last sentence! The lead federal government ERISA enforcement official says a significant problem exists in the marketplace. Worse, she says that you don't have to be formally appointed to become a fiduciary. Your actions regarding a retirement plan are more determinative than the name of your position. How To Improve Fiduciary Performance Plan sponsors need to define who the plan fiduciaries are, assess their current abilities, and then develop formal programs to ensure that they have the training and tools to effectively fulfill their fiduciary duties. A first step might be to take an inventory to determine who is currently acting in a fiduciary capacity. Remember to include not only those named in your plan documents or corporate resolutions, but also those making investment or administrative decisions for your plan. After identifying the fiduciaries, analyze how your organization has assisted them in learning and fulfilling their duty. This will usually be the point in your discovery process where you realize that a significant shortcoming exists. You may find that your organization has no operational framework for ensuring that your plan fiduciaries know their duty, has not educated them about their duty and has not provided the proper tools to fulfill those duties. A formalized organizational/structural approach can provide such a framework for improved fiduciary decision making. Addressing the problems at the root level appears to be the most effective remedy. Steps can be taken to identify and fix past or current errors, address process or systemic problems and educate responsible parties. These may include the following:
A Fiduciary Charter Approach Most organizations focus on the preventive nature of fiduciary structuring and training. Risk management, loss prevention and liability reduction are the targeted outcomes. The common belief is that the more effectively this is done, the better chance of minimizing future problems or violations. My premise differs by focusing on structure, systems and processes designed to foster prudent and positive fiduciary behaviors. Individual fiduciaries would be trained to be focused on only one targeted (and statutorily mandated) outcome -- to act solely in the interest of participants and beneficiaries. Only by maintaining this singular focus can any organization or fiduciary ensure compliance with ERISA's mandates. The purpose of the a Fiduciary Charter is to formally summarize the role of each fiduciary, enumerate the responsibilities entailed in that role, describe limitations on authority and explain how those duties may be delegated to experts. Components of a Fiduciary Charter might include:
Conclusion Organizations must address ERISA-mandated duties seriously. Disregarding more traditional risk management approaches, and focusing exclusively on the benefit of plan participants and their beneficiaries, provides a more efficient means of fulfilling these duties. The intent of a Fiduciary Charter is to formalize the process wherein assigned fiduciaries are provided the resources to fulfill their duties by defining basic expectations and presenting a guide for fiduciaries to follow. Such a "Charter," combined with introductory and continuous training, will enable fiduciaries to better fulfill their duties to protect the plan and its beneficiaries. Seriously consider implementing a Fiduciary Charter for your plan. Other articles by Robert J. Higgins: Cruise Control vs. Auto Pilot: The Need for a Third Party Review of Plan Fiduciary Functions. ### 401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise. | ||||
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