A recent class-action lawsuit highlights an often neglected but important item of fiduciary concern.
The plaintiffs, in this case, have asserted claims for breach of the fiduciary duties of prudence and failure to monitor fiduciaries. Nothing new so far, but in addition to naming the typical plan fiduciaries as defendants, the lawsuit also targets members of the board of directors, as well as other officers of the firm who serve on the retirement plan’s fiduciary investment committee.
The complaint indicates that the “Taylor Corporation, ... is the Plan sponsor, the Plan Administrator (as defined in Section 3(16) of ERISA), and a named fiduciary...”
You may be wondering why the board of directors is implicated in this litigation. The reason is that the Taylor Company’s plan document indicates that “the company” is the named fiduciary for the plan. The “named fiduciary” identifies the plan’s primary fiduciary (the main decision-maker for the company).
In a corporation with a board of directors, where “the company” is identified as the named fiduciary the board is considered to be the main decision-maker on behalf of the company and thus, as a result, the primary fiduciary of the plan per ERISA. Other co-fiduciaries may also be liable for any fiduciary breaches they may be involved with. This is a concept often misunderstood by many plan fiduciaries and members of board of directors.
Fortunately, there is a simple way to offset this liability, if done prior to a fiduciary breach taking place. The solution is to have the board delegate fiduciary responsibilities to individuals or a committee, as permitted by the plan document. The board should formally delegate responsibilities pursuant to formal board action (which may be reflected in board meeting minutes or board resolutions) and adopt a committee charter that identifies the company’s intended named fiduciary(ies). Others can be delegated for specific fiduciary responsibilities as co-fiduciaries who should sign on acknowledging their roles and responsibilities. This simple action essentially helps to insulate the board of directors from liability for day-to-day actions taken by delegates that the board may often not even possess knowledge of. That said, the board still remains the named fiduciary under the plan document, so they have a fiduciary responsibility to monitor their delegates. That can be accomplished as simply by reviewing meeting minutes taken by the delegates during the course of the plan year. As long as no action taken by the delegates seems unusual or not in the best interests of participants the board should be relatively insulated from potential liability.
If you'd like a sample board resolution, committee charter, committee acknowledgments, and/or committee resignation/removal template, please reach out to us here at Stonebridge. These documents are easily customizable and ready for implementation upon board resolution. It is considered best practice for all plans to utilize these documents as they explicitly identify individuals/entities that are intended to be fiduciaries for the plan’s administrative, operational, and investment responsibilities.
How Stonebridge Can Help
It can be a bit overwhelming to administer a company retirement plan, given all the documentation nuances let alone the deadlines! At Stonebridge Financial Group, we work exclusively with retirement plans and can help you with everything from designing to running your plan. Delegating fiduciary responsibilities can be a great solution for plan sponsors who lack time and the knowledge of ever-changing requirements to manage a retirement plan -- it's is all we've done since our inception back in 2004! Our robust service offering starts with ERISA 3(21) and 3(38) services and is the tip of the iceberg. We are consultants that help you with every aspect of your plan:
- Plan governance including board resolutions, committee charter, and more
- Implementing cybersecurity best practices
- Plan design including student debt benefits
- Complete IRS and CPA audit support - we have ex-auditors on staff!
- Participant 1:1 and group education
- Fee benchmarking
- Ensuring participant retirement readiness
- Consulting on financial wellness
- Committee fiduciary training
- Process creation and documentation
- Plan design
- Contribution match modeling
- Annual plan compliance review
We become your outsourced retirement plan officer who dives into the morass of retirement plan details and resolves issues so you don't have to!
Please click here to schedule a short call, give us a call at (855) 530-0500 x601 or email email@example.com. We look forward to helping your committee successfully fulfill their fiduciary duties with ease and excellence!
The class action complaint can be found at: