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Employee Benefit Plan Fiduciaries: What is Your Responsibility?

May 19, 2014

Jessie T. Kanter, CPA
Manager

As a fiduciary of an employee retirement plan, it is important to understand your responsibilities as well as the responsibilities of the other fiduciaries of the plan.  An understanding of these responsibilities can be obtained by reviewing various plan instruments, including the plan document and related adoption agreement, trust document, service agreements, collective bargaining agreements and internal policies and procedures manuals.  The following is a brief description of the key parties to a retirement plan (which are generally the fiduciaries of the plan) and their responsibilities.

The Plan Sponsor

The plan sponsor is usually the employer whose employees are covered by the plan.  The plan sponsor may also be the plan administrator, as defined by the plan document.  The plan sponsor generally will delegate responsibilities for the plan to various departments or committees within the organization, such as the audit committee, administrative committee, investment committee, human resources department, finance and accounting department or payroll department.

The plan sponsor’s responsibilities include the following:

  • General administration of the plan including notices to employees regarding eligibility provisions, the summary plan description, amendments to the plan and various other pertinent plan details.
  • Enrollment and contribution transactions including monitoring eligibility of employees to enter the plan and ensuring the accuracy of contributions into the plan.  This also includes the timely deposit of those contributions into the plan.
  • Distribution and withdrawal of benefits due to employees including authorization and approval of distributions to eligible employees.  This includes distributions upon termination, hardship, loans from the plan or other allowable withdrawals per the plan document.  These administrative duties may be outsourced to third parties; however, the plan sponsor retains the responsibility of ensuring distributions out of the plan are properly authorized.

The Recordkeeper

The plan’s recordkeeper maintains the individual account records for each of the plans’ participants in a defined contribution plan.

The recordkeeper’s responsibilities include the following:

  • Transaction processing and posting to a participant’s account, including purchases, redemptions, exchanges and transfers of investments.
  • Participant account maintenance, including name, address and other changes. 
  • Reconciliation and administration, including reconciliation of investment shares and movement of funds.
  • Shareholder services via call centers, mail services and electronic communications.
  • If included in the service agreement, tax compliance testing and Form 5500 preparation.

Trustee or Insurance Company

The plan’s trustee is the individual or entity with exclusive authority and discretion to manage or administer the plan.  Trustee services are often bundled with other services, such as recordkeeping functions.  The plan’s assets must be held in a trust and used solely for the benefit of plan participants, except in the case of a plan set up through insurance contracts, in which case those contracts do not need to be held in a trust.  When a plan is set up through insurance contracts, an insurance company generally performs the same duties as the trustee as noted above.

The trustee or insurance company’s responsibilities include:

  • Collecting and holding plan assets in trust for the plan’s participants. 
  • Processing investment transactions and income, preparing summary financial reports and distributing funds to plan participants or to pay for plan expenses.

As a fiduciary to a retirement plan, it is important to understand the different components and functions of the plan and who performs those functions.  It is the responsibility of the plan sponsor to ensure the appropriate third-party service providers are hired to administer the plan.  This includes monitoring those service providers to determine that they are fulfilling their responsibilities as noted above.

For more information please contact Jessie Kanter at jkanter@blumshapiro.com or 401.330.2722.

 

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