Team & Fiduciary Responsibility | Employer
Role
If you are the employer, your role on the benefits team is to:
- Determine the plan design, adopt the plan document, and keep the plan document up to date with the ever-changing employee benefit plan laws and regulations.
- Make contributions to or pay benefits under the plan to the extent required by the plan.
- Administer the plan or appoint the plan administrator (see separate role description below).
- Appoint the plan's trustee, if necessary (see separate role description below).
- Adopt an investment policy, if necessary.
- Hire third parties to assist you, if necessary, such as a third party administrator, a benefits consultant, an actuary, an employee benefits attorney, and an accountant (see separate role descriptions below).
- Make decisions involving the amendment or the termination of the plan.
As the sponsor of an employee benefit plan, you are ultimately responsible for the overall design of the plan, such as the categories of employees who can participate and the benefits to be provided. You also decide the general manner in which the plan will be administered, as well as the circumstances under which it will be amended and terminated.
Once the overall objectives of your company's plan have been determined, you need to adopt a plan document and, if the plan is going to be funded (e.g., a qualified retirement plan), a trust document. You must then decide whether to act as the plan administrator or appoint a plan administrator and, if the plan is funded with a trust, appoint the trustee(s) and adopt an investment policy.
You may also find it to be desirable to hire a third party administrator (TPA) to assist you with the administration of the plan because you may not be familiar with the rules and regulations that govern employee benefit plans or do not have the human resources to handle all of the administrative requirements of such plans internally. A TPA will work with you, the plan administrator, and the trustee(s) in determining who meets the plan's eligibility requirements, the amount of the contributions, and the extent of the participants' benefits. A TPA will also assist you in keeping each of your employee benefit plans in compliance with the numerous employee benefit plan laws. This function is extremely important because a plan that does not comply with such laws can result in adverse tax consequences to you and the participants and subject the plan's fiduciaries to personal liability. You should have a written service agreement with each TPA that you hire in order to avoid misunderstandings as to the TPA's role and your responsibilities in allowing the TPA to provide services to you. In addition, you may want to hire other outside advisors to assist you with your employee benefit plans such as a benefits consultant, an actuary, an employee benefits attorney, and an accountant.
Once all the plan documents and the players are in place, the plan can be implemented and administered by:
- Determining who is eligible to be in the plan.
- Funding the plan in the manner required by the plan.
- If the plan is funded with a trust, making contributions to the trust from employer contributions, employee contributions, or both, and determining how the trustee will invest the trust's assets.
- If the plan is fully insured, paying insurance premiums from employer contributions, employee contributions, or both; or
- If plan benefits are to be paid out of your general assets, making sure that the funds are available.
- For plans that are not fully insured, processing claims for benefits and paying approved claims either out of the trust if the plan is funded with a trust or out of your general assets if is not.
- Testing the plan each year under the applicable nondiscrimination tests.
- Complying with the various reporting and disclosure requirements applicable to the plan.
Employer Fiduciary Liability In General
Although the employer is the plan's sponsor, whether it is a plan fiduciary will depend on how the plan is administered and what the plan document says. If one or more employees (or members of the board of directors) of the plan sponsor are responsible for the day to day administration of the plan or are responsible for the investment of plan assets, the employees and their employer probably will be treated as fiduciaries of the plan. Furthermore, many plan documents, particularly prototype documents, specify that the employer is the ERISA plan administrator of the plan. It is important for you to read your company's plan document to determine who is the designated plan administrator.
In general, you should attempt to avoid the plan's designation of the employer as the plan administrator. If the employer is the designated plan administrator, the employer's board of directors and officers can be held liable as fiduciaries of the plan even though they may know very little about the day to day operations or investments of the plan. Generally, we recommend that the plan provide that an administrative committee designated by the employer will be the plan administrator. In this way, the employer can designate as the plan administrator a group of individuals who understand that they will be plan fiduciaries and who have some appreciation for the operation of the plan. Of course, the employer will be responsible for the prudent selection and monitoring of the administrative committee.
Limiting Employer Fiduciary Liability
Apart from designating an administrative committee to serve as the plan administrator, there are other ways for the employer to limit its fiduciary liability. These include:
- Designating an institution rather than an employee (particularly the owner) of the company to serve as the plan's trustee.
- Hiring a registered investment advisor to take responsibility for the investment of the plan's assets.
- Making plan participants responsible for the investment of their own accounts, in the case of a defined contribution plan, such as a 401(k) plan or a profit sharing plan (see our discussion of participant-directed investments).
- Making sure that the company and the plan administrator receive appropriate and expert outside advise and assistance from benefits experts such as a third party administrator, an employee benefits attorney and a benefits consultant.