Conference of Mayors Introduces “Fiduciary Corner”
December 3, 2012
As an additional enhancement to The United States Conference of Mayors new low-cost retirement savings program, we are launching a new fiduciary series called “Fiduciary Corner.”
This first article summarizes the essential fiduciary responsibilities that city plan sponsors need to understand to properly administer and operate your city’s retirement savings plan. The most common fiduciary mistakes are due to a lack of awareness of fiduciary basics, not willful disregard. Thus, we encourage you to send questions related to fiduciary responsibility to email@example.com with Subject: Fiduciary Corner. Great-West Financial Legislative and Regulatory Affairs Senior Director Marilyn Collister will provide the answers. Answers will be printed in future editions of the U.S. Mayor.
A Plan Sponsor’s Fiduciary Responsibility
Plan Sponsors Are Fiduciaries - As the sponsor of your 457(b) deferred compensation plan, you are offering your employees a great opportunity to save for retirement. Fulfilling your fiduciary duties and maintaining the trust of your participants is extremely important. Although some time and effort is required on your part, compliance may not be as difficult as you might imagine. Plan sponsors are plan fiduciaries by virtue of exercising discretion over the management, operation and administration of the plan and its assets. The fiduciary duties applicable to private plans are spelled out in the Employee Retirement Income Security Act of 1974 (ERISA). Although governmental plans must comply with state law rather than ERISA, many state statutes are similar to, and certainly do not conflict with, the fiduciary responsibilities set forth in ERISA.
A Plan Fiduciary’s Standards of Care - A plan fiduciary has a variety of roles and duties with respect to the plan and must perform those duties prudently and in the best interest of plan participants and beneficiaries. The primary standards of care for plan fiduciaries include:
Exclusive Benefit Rule, also known as the Duty of Loyalty – One of the most important of your fiduciary duties is that of loyalty to the plan participants and beneficiaries. It requires plan sponsors to act for the exclusive purpose of (1) providing benefits to plan participants and beneficiaries, and (2) paying only reasonable expenses in administering the plan. You are required to act solely in the best interests of the plan and its participants by defraying plan expenses and avoiding self-dealing arrangements or conflicts of interest.
Prudent Person Rule – Plan sponsors are required to act with the care, prudence, skill and diligence that a knowledgeable person would use in maintaining and operating a defined contribution plan. Prudence requires you to handle the affairs of the plan in accordance with good judgment and sound processes. It requires you to diversify the investment options made available under the plan and to carefully select and monitor those investment options, the fees charged to the plan and any experts you choose to retain to assist you.
Following Plan Documents – The plan document is the contract between the plan sponsor and the plan participants and beneficiaries. It is your manual for operating and administering the plan and you must keep it updated to comply with changes to the Internal Revenue Code.
If you have questions about fiduciary responsibility, send them to the Fiduciary Corner at firstname.lastname@example.org. To read more about the new program, visit the website www.USCMRetire.org. As always, you are encouraged to discuss all plan issues with your counsel.