ERISA applies to all private sector plans, but not public sector plans or those sponsored by churches. Under the law, plan sponsors have a “fiduciary responsibility” to administer retirement and health plans in accordance with the plan document and applicable laws, to act solely in the interest of plan participants and to prudently manage and diversify the assets under the plan. Prudence focuses on the on-going process of making, monitoring and documenting fiduciary decisions and responsibilities. Fiduciaries who do not follow the standards may be personally liable for plan losses as a result of their actions or non-actions.
Who, specifically, has fiduciary responsibility? Although every ERISA plan must list at least one person or entity as its fiduciary, the fiduciary responsibility extends to anyone who makes decisions regarding plan administration or asset management. It might be an individual, an administrative committee, a board of directors, or any combination of those. Anyone who has discretion over the plan could be considered a fiduciary.
Prudently managing assets means continuously monitoring investments to ensure expenses are minimized and investment options are diversified, not just at the initial selection of investments. This will be emphasized if the U.S. Supreme Court finds for the plaintiffs in Tibble v. Edison. In the Tibble case, petitioners allege that the California-based Edison International should have replaced three mutual fund options with others that were almost identical and less expensive and there is an on-going breach of fiduciary responsibilities that doesn’t end. If the Court agrees, all retirement plans will have to regularly review their plans to ensure they are meeting fiduciary obligations.
Regardless of the outcome in the Tibble case, plan sponsors would be smart to do their due diligence in monitoring the plan administration and asset management.