Plan Sponsor Responsibility and Potential Liability
Section 409(a) of the Employee Retirement Income Security
Act of 1974 (“ERISA”) imposes personal liability on fiduciaries,
such as plan sponsors, that breach their duties. In the
Enron settlement, outside members of the Board and the chair
of the plan committee contributed to a settlement from their
personal assets.
Section 404(c) Relief
All 401(k) providers seek to assist plan sponsors in limiting
their responsibility and potential liability for plan investments
in accordance with ERISA Section 404(c) and delegating responsibility
to participants for their own investment selections. However,
if the plan does not qualify as an ERISA Section 404(c)
[plan], “the fiduciaries retain liability for all investment
decisions made, including decisions by the plan participants.”
Thus, the critical fiduciary issue for the plan sponsor
is the initial selection and continuous monitoring of the
investments offered for participant-direction.
The Investment Menu is the Thing!
A plan sponsor receives the protection offered by ERISA
404(c) only where the investment options offered to participants
are suitable and prudent for the plan and remain so on an
ongoing basis. The preamble to 404(c) regulations provide:
“… [T]he act of designating investment alternatives…is a
fiduciary function to which the limitation on liability
provided by section 404(c) is not applicable.” If the plan
does not qualify as a ERISA Section 404(c) [plan], “the
fiduciaries retain liability for all investment decisions
made, including decisions by the plan participants.”
The ManagedPlan Solution: ManagedPlan was
designed to allow plan sponsor’s to take advantage of ERISA’s
“safe harbor”, allowing a plan sponsor to delegate investment
responsibility (and limit fiduciary liability for plan investments)
to a qualified “investment manager”. A qualified investment
manager is a bank, registered investment advisor, etc. who
accepts its fiduciary status and discretion over the assets
to be managed in writing. If investment responsibility is
properly delegated, the plan sponsor will not be under any
obligation to invest or manage any assets of the plan that
the investment manager is responsible for investing.
ManagedPlan offers a choice of leading, independent, ”investment
managers” that specifically assume fiduciary responsibility
with respect to plan assets. Each investment manager undertakes
an unbiased investment selection process with no proprietary
funds and no sub-advised funds. As a result, under the ManagedPlan
Program a plan sponsor’s fiduciary duty is not to invest
or manage assets of the plan but simply to monitor the selected
investment manager’s performance.
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