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Prepared by the U.S. Department of Labor
Chapter 8: Protecting Your Plan's Assets From Mismanagement and Misuse
This chapter is about the responsibilities of fiduciaries. Fiduciaries must act in accordance with ERISA guidelines and the rules of your plan. The following questions are addressed:
- What Protections Do The Fiduciary Requirements Of ERISA provide?
- When Can Your Choose Your Own Investments?
ERISA protects your plan from mismanagement and misuse of assets
through its fiduciary provisions. ERISA defines a fiduciary as anyone who
exercises discretionary control or authority over plan management or plan
assets, anyone with discretionary authority or responsibility for the
administration of a plan, or anyone who provides investment advice to a
plan for compensation or has any authority or responsibility to do so.
Plan fiduciaries include, for example, plan trustees, plan administrators,
and members of a plan s investment committee.
The primary responsibility of fiduciaries is to run the plan solely in
the interest of participants and beneficiaries and for the exclusive
purpose of providing benefits and paying plan expenses. Fiduciaries must
act prudently and must diversify the plan's investments in order to
minimize the risk of large losses. In addition, they must follow the terms
of plan documents to the extent that the plan terms are consistent with
ERISA. They also must avoid conflicts of interest. In other words, they
may not engage in transactions on behalf of the plan that benefit parties
related to the plan, such as other fiduciaries, services providers or the
plan sponsor.
Fiduciaries who do not follow these principles of conduct may be
personally liable to restore any losses to the plan, or to restore any
profits made through improper use of plan assets. Courts may take whatever
action is appropriate against fiduciaries who breach their duties under
ERISA including their removal.
In some defined contribution plans, a group or an individual makes all
the investment decisions for the plan's assets. In certain defined
contribution plans, however, plan officials may decide to provide a number
of investment options, and they may ask you to decide how to invest your
account balance by choosing among those investment options.
The Department of Labor has established rules about plans that permit
participants to direct their own investments. Under these rules, if, and
only if, you truly exercise independent control in making your investment
choices, plan officials will be excused from the fiduciary responsibility
for the consequences of your investment decisions. A plan under which you
in fact exercise independent control over the investment of your
individual account is called a 404(c) plan (after § 404(c) of ERISA).
If you are a participant in a 404(c) plan, you are responsible for the
consequences of your investment decisions, and you cannot sue the plan
officials for investment losses that result from your decision.
You are entitled to receive a broad range of information about the
investment choices available under a 404(c) plan. Thus, a plan that
intends to relieve plan officials of fiduciary duties over investments
must inform you of that fact. Also, the 404(c) plan must give you
sufficient information about investment options under the plan for you to
be able to make informed decisions. The information you are entitled to
receive without asking includes the following:
- A description of each investment option, including the investment goals, risk and return characteristics.
- Information about designated investment managers.
- An explanation of when and how to make investment instructions and any restrictions on when you can change investments.
- A statement of the fees that may be charged to your account when you change investment options or buy and sell investments.
- Information about your shareholder voting rights and the manner in which confidentiality will be provided on how you vote your shares of stock.
- The name, address, and phone number of the plan fiduciary or other person designated to provide certain additional information on request.
THE TEXT ABOVE IS PUBLIC DOMAIN MATERIAL AUTHORED BY AN AGENCY OF
THE UNITED STATES GOVERNMENT AND NOT COPYRIGHTED BY THIS WEBSITE.
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