UNDERSTANDING YOUR BANK’S 401(K) FIDUCIARY LIABILITY BY ANDY PHILLIPS, BENEFIT & FINANCIAL STRATEGIES, LLC GUEST ARTICLE I’m assuming you offer your employees a robust retirement plan. Just like in banking, ERISA compliance regarding your retirement plan is paramount. Your banking regulator looks for red flags relating to credit or flood determinations or maybe BSA issues. The Department of Labor looks for problems relating to ERISA violations. The Employee Retirement Income Security Act of 1974 sets standards and regulations for private-sector employee benefit plans. The number one key feature of ERISA is Fiduciary Responsibility. We all understand the definition of fiduciary, but do you know who or how this impacts your bank? Fiduciaries generally include the Plan Sponsor/Employer, the Plan administrators, Trustees, Investment Committees and other individuals who have “control” over the plan’s management or assets. As the employer, your bank is most likely the Plan Sponsor, which in and of itself has fiduciary responsibility and liability for managing the plan assets. In many cases, individuals like the CEO or CFO may be listed as a Trustee in the Plan documents. As Trustee, these individuals (can be more than one) also have fiduciary responsibilities and liability. Additionally, some banks have an Investment Committee that could also be considered a fiduciary and thus be responsible for and liable for maintaining proper documentation of their investment decisions and actions taken on behalf of the plan. What does “fiduciary” responsibility mean? Every fiduciary has a duty to act in the best interests of the plan participants and beneficiaries. This includes such things as prudently managing plan assets, offering a diversity in investments and ensuring compliance with all applicable laws and regulations. What steps can help reduce bank and individual liability? 1. Have a clear understanding of its fiduciary duties and obligations under ERISA. 2. Document decisions and processes including minutes from trustee meetings, investment reviews and due diligence processes. This can help demonstrate that the trustee acted prudently. 3. Seek professional advice. This can include engaging investment advisors, legal counsel and consultants with expertise in retirement plans. 4. Conduct regular plan reviews and audits. Review operations, investments and administrative procedures to ensure ongoing compliance. 5. Engage with qualified service providers such as record keepers, investment managers and TPAs (third-party administrators). 6. Consider purchasing fiduciary liability insurance which can help cover legal costs, settlements or judgments resulting from alleged breaches of fiduciary duties. What types of events might cause the Department of Labor to conduct an audit or start an investigation of a retirement plan? Some common triggers are: a. Participant complaints: The DOL may initiate an audit based on complaints or concerns raised by plan participants or beneficiaries. The complaints can relate to issues such as late or improper distribution of benefits, mishandling of participant contributions or other plan administration concerns. b. High Risk Designation: The DOL may target certain plans for audit based on risk assessment criteria. Factors that could contribute to a high risk designation include complex plan structures, prior compliance issues or industry-specific risks. 16 Community Banker
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