Team & Fiduciary Responsibility | Plan Administrator
Role
If you are the plan administrator, your role is to:
- Develop written policies and procedures for the operation of the plan (e.g., enrollment forms, claims forms, qualified domestic relations procedures for a retirement plan or qualified medical child support procedures for a health plan, or procedures for allowing participants to direct the investment of their accounts under a retirement plan).
- Advise participants and beneficiaries on how the plan works, such as through the publication of a summary plan description (SPD).
- Keep track of the participants' eligibility for benefits under the plan (e.g., for each employee, keep track of name, address, social security number, marital status, date of birth, date of hire, compensation, and job classification).
- Make decisions on benefit claims and the payment of benefits.
- Assure compliance with the applicable laws and regulations to include maintaining the paperwork for both the employer and any interested government agencies, such as the Internal Revenue Service, the Department of Labor, and, for certain retirement plans, the Pension Benefit Guaranty Corporation.
The plan administrator may be the employer or an administrative committee made up of key executives who are familiar with personnel matters. Because of the complexities of the employee benefit plan rules, you (or the employer) may wish to hire a third party administrator (TPA) to assist you and the employer with the administration of the plan. Remember, however, that even if a TPA is hired, you are still responsible for supervising the TPA and making any discretionary decisions with respect to the operation of the plan.
Plan Administrator Liability In General
As mentioned earlier, ERISA requires every plan to have a plan administrator or named fiduciary. Generally speaking, the plan administrator designated under the plan has the responsibility for making decisions with respect to:
- Eligibility to participate in the plan.
- The determination of the amount of benefits payable under the plan.
- The approval or denial of benefit claims.
Given these responsibilities, employers generally find it best to designate a specific employee or group of employees (an "administrative committee") with first-hand knowledge of, and responsibility for the operation of the plan, as the plan administrator.
There are several advantages to appointing a specific employee or employee committee as plan administrator in that it:
- Enables the employer to clearly identify the person or persons who make a formal action on behalf of the plan, thereby achieving continuity and consistency in plan interpretation and benefit decisions.
- Removes the employer itself, or its management, from becoming party to any lawsuits brought with respect to plan benefits, thereby limiting the introduction of other issues involving the employee's employment relationship (e.g., poor employee performance) and focusing the inquiry upon the decision made in terms of the plan.
- Permits the establishment of a clear and consistent benefit claims procedure that has the best chance to be carried out and, as a result, has the best chance to withstand a court challenge.
The decision to make the plan administrator a single individual or a committee depends upon the preferences of the employer. Appointment of a single individual who is most familiar with the plan such as an employee benefits manager may be appropriate in the cases of some companies. In the case of somewhat larger companies, the appointment of a small committee, for example, one comprised of the director of human resources, the benefits manager, and a human resources manager, may be equally appropriate.
The appointment of the individual or individuals to serve as the plan administrator should be made in light of the objectives mentioned above, namely to:
- Establish the most efficient and effective structure for administration of the plan.
- Allocate and delegate functions to the entity or persons best suited for the particular task.
- Clearly delineate such allocations and delegations in the plan documents.
Although there are always exceptions to the rule, our general recommendation is that the employer should appoint, as plan administrator, the person or persons who are most familiar with the day to day administration of the plan, are charged with its maintenance and operation, and who have the particular expertise to interpret the plan and apply it in the proper manner to the employer's work force.
Limiting Plan Administrator Liability
The best way for the plan administrator to limit its liability under ERISA is to practice procedural prudence. That is, acting in a deliberate and prudent manner after fully consulting the relevant plan documents and expert advisers (if needed). The prudent plan administrator should:
- Make sure it has carefully read and understands the plan document.
- Establish uniform written policies to govern areas of plan administration that are not adequately addressed in the plan document, such as plan loans, hardship withdrawals, and the handling of QDROs.
- Carefully document its decisions and the basis for each significant decision.
- Retain qualified advisors and experts to assist it with areas of plan administration where it does not have the requisite knowledge.
- If you are an employee and have been asked to serve on your company's administrative committee, you may want to ask whether your company will indemnify you (hold you harmless) from legal liability, except in cases of a willful fiduciary breach. Many companies also provide fiduciary liability insurance for members of their administrative committee.