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Fiduciary Responsibilities
Must plan
fiduciaries be bonded?
Yes. Plan
Fiduciaries who handle or have the authority to handle plan assets must be
bonded. A plan fiduciary is considered to be handling funds when the
fiduciary's responsibilities risk the loss of funds through fraud or other
dishonest means, except in those instances where the risk of loss is negligible.
What is
the required fiduciary bond amount?
The minimum bond is
$1,000. The maximum bond is $500,000. A bond must cover at least 10%
of plan assets.
Can
fiduciaries who handle plan assets obtain personal liability coverage for their
actions within the Plan?
Yes. Fiduciaries, as well
as co-fiduciaries, who breach their duties may be personally liable to make a
plan whole for losses caused by their breach, including lost opportunity and
litigation costs. As a result of a breach of fiduciary responsibility,
fiduciaries can be removed and barred from acting in a future fiduciary capacity
with respect to any plan.
Can civil
penalties be levied on fiduciaries in breach of their responsibilities?
Both the Internal
Revenue Service (IRS) and the Department of Labor (DOL) can levy civil penalties
on fiduciaries. The IRS can assess a 5% prohibited transaction excise tax
on a fiduciary who participates in a prohibited transaction. The IRS has
the authority to increase the excise tax to 100% of the amount of the
transaction that has not been corrected, if after notice from the IRS that a
levy will occur, the prohibited transaction has not been corrected.
Additionally, the DOL can levy a civil penalty of 20% of the amount recovered
with respect to a plan.
May a plan
shield a fiduciary in advance of liability?
No. There are no
provisions that permit a plan to prospectively agree to exempt a particular
fiduciary from liability.
How may
fiduciaries insure that they will make prudent fiduciary decisions and
adequately document their investment handling?
Fiduciaries must
exercise procedural due diligence, which is a process for making high-quality,
prudent fiduciary decisions and documenting the decisions made in that
process. Moreover, a fiduciary's use of procedural due diligence enables
the fiduciary to obtain a better defense in the event that the prudent decision
results in desultory outcomes.
What items
must a fiduciary consider to properly analyze investment alternatives?
To obtain the greatest
protection in analyzing investment alternatives for the plan, a fiduciary must:
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Read all pertinent investment documents and disclosure materials;
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Ascertain the reasonableness of any fees associated with the investment;
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Be able to show that the investment is reasonably designed to further plan purposes and is consistent with the plan's funding policy;
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Review investment alternatives and obtain competitive bids where feasible;
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Research the investment's historical performance, as well as that of its sponsor, and check any available rating service information that covers the particular investment;
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Hire an expert to help in the decision-making process;
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Obtain regular information about the prospective investment's performance of the investment, and note any material discrepancies;
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Document all activity engaged in the investment decision-making process and keep a detailed file of all pertinent documents, including reports, meeting notes, and legal documents.
Are
non-publicly traded assets a reasonable investment?
Only if the
fiduciary's due diligence can be documented as outlined above.