Notwithstanding its age, ERISA is not a dusty book on the bottom shelf of a dark library. Rather, the erisa requires a fiduciary to diversify investments and events of our modern economy and society have created impetus for ERISA’s continued evolution. Our courts have often referred to ERISA’s standards as the highest standards to be found anywhere in American law. Despite the exacting fiduciary responsibility that ERISA creates, however, ERISA itself does not provide much input regarding how exactly to practically ensure effective fiduciary governance.
This white paper seeks to describe, in simplified terms, the practices of effective and efficient retirement plan committees. It reflects the Multnomah Group’s experiential and industry knowledge of how retirement plan committees can be an outstanding vehicle for the successful execution of a plan sponsor’s fiduciary duties. Our goal is to provide a roadmap of best practices to bear in mind when creating and operating a retirement plan committee. As with any undertaking involving compliance with ERISA, we recommend seeking the advice of experts to help shape the committee’s underlying philosophies, formalization and ongoing decision making. In general, ERISA prescribes four standards that plan fiduciaries are expected to maintain while executing their fiduciary responsibilities. In the event that these standards are not met, fiduciaries may incur personal liability.
Exclusive Benefit Rule — The exclusive benefit rule requires plan fiduciaries to act solely in the best interests of participants and their beneficiaries. In practice, this standard requires plan fiduciaries to set aside their own personal aspirations in favor of the well being of the overall participant population. ERISA clearly sets forth a list of prohibited transactions that plan fiduciaries must take appropriate steps to avoid. Prudent Person Rule — A plan’s fiduciaries are not required or expected to be retirement plan experts, but ERISA does require them to act with the care, prudence, skill and diligence that a knowledgeable person would use in a similar situation. Compliance with this rule often requires the engagement of experts to aid in making decisions with or on behalf of the plan. Adherence to the Plan Document — The plan document is somewhat of a contract between the plan sponsor and its participants. It serves as the plan sponsor’s manual for operating and administering the plan.