What must an ERISA Fiduciary do?
Under the Prudent Expert Rule, an ERISA Fiduciary must:
- Act with skill and diligence of a prudent person knowledgeable in the particular action being taken
- Carry out responsibilities solely in the interest of plan participants for the exclusive purpose of providing plan benefits and defraying reasonable expenses
- Diversify investments to manage risk and impact of large losses
- Act in accordance with plan documents when not consistent with ERISA
Who are ERISA Fiduciaries?
- Plan sponsors
- Plan administrators
- Plan Trustees
- Investment managers
- Committee members
- Investment Advisors
Plan Fees and Expenses
- Plan fees and expenses must be reasonable.
- Reasonableness can be determined by benchmarking against other plans with similar characteristics and features.
- Fees should be evaluated considering which services are included.
- Comparison among different providers' programs and ongoing due diligence help to ensure that fees and expenses continue to be reasonable.
- Reasonable does not mean "cheapest", but the cost should be commensurate with the services added.
Qualified Default Investment Alternatives (QDIA)
- ERISA Fiduciaries are relieved of fiduciary liability for the investment of plan assets into a Qualified Default Investment Alternative (QDIA).
- QDIAs must be one of the following:
- Age-based or target date investments
- Balanced investments
- Managed accounts
- Participants must have had reasonable opportunity to direct the investments
- given notice at least 30 days in advance of plan eligibility AND 30 days in advance of the first investment into a QDIA
- given notice at least 30 days in advance of plan eligibility AND 30 days in advance of the first investment into a QDIA
- Participants must:
- Be able to transfer out of the QDIA and into other options
- Always have and opt-out option