If you read the first of this series, you understand the difference between a business decision and a fiduciary decision.  And you understand that part of your duties are monitoring all your service providers (no matter what they say).  But what if something goes wrong?  What are the consequences for a Breach of Fiduciary Duty which is easier than you may think if you don’t have systems in place?

Think of it this way - having a retirement plan is very much like running an investment firm.  The fiduciaries are charged with the oversight of participant’s monies and (to some degree) the investment responsibility of the participants.  This is not a part-time job, it is a big responsibility.    I helped run an investment firm and found out that with policies and procedures, we could reduce our fiduciary risk (and errors), give great service to our clients and it could be efficient, streamlined and cost-effective. 

Usually fiduciaries are only penalized by the regulators if there is fraud, however, per the DOL, ERISA allows for several excise taxes and civil penalties that can be assessed (by both or either DOL and the IRS) depending on the nature of the breach.   Individual fiduciaries may have to

  • Restore Losses
  • Give Up Any Profits
  • Pay Civil Penalties And Excises Taxes
  • Be Removed And Barred From Being A Fiduciary

They may also face criminal charges depending on the nature and intent of the issue.

But in today’s environment, fiduciaries no longer just worry about regulators; they must also worry about participants/beneficiaries and their lawyers.   In lawsuit after lawsuit against a plan, individual fiduciaries are named.  This means that the individual fiduciaries may be spending lots of time and money to defend themselves.  

The best method to insulate yourself against problems with the IRS, DOL or participant litigators is to put Board approved policies, procedures and practices in place to oversee internal and third-parties activities.   Your Board should receive Fiduciary Education to help them understand what should and should not be done.  And finally, you need to institute a review system using and internal auditor, independent qualified retirement plan consultant or an e-compliance system like The FIRE System to find and help fix the issues your firm has.

The best method to deal with plan problems is to avoid them or to fix them as quickly as possible.

Next in the Series – Choosing Providers (aka RFP Process)