Retirement Plan ERISA Fiduciary Duties During the COVID-19 Crisis

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By: Christine Gottesman, Esq.

This article appeared on on July 14, 2020.
Step One – Identify the ERISA fiduciaries

The first step is to make sure that the individuals who are designated retirement plan fiduciaries are aware that they are ERISA fiduciaries and receive appropriate fiduciary training.   This may seem obvious but this is something that is often overlooked in the everyday running of a business.

An ERISA fiduciary is any individual named in the plan as a fiduciary and anyone who has any discretional authority or control over the plan, its assets or plan administration.   Many plan documents simply identity the sponsoring company as the named fiduciary and plan administrator.  If that is the case with your plan, then the board of directors (or other governing body) is the ERISA fiduciary.  They can formally delegate that authority to a Retirement Plan committee of the board or officers, but they retain general oversight responsibility.   If authority is delegated, then the retirement plan committee is the primary entity responsible for the plan and anyone on the committee should understand his/her obligations.

Step Two – Review ERISA Fiduciary Obligation Framework

Now is a good time for retirement plan investment fiduciaries to remind themselves of their ERISA fiduciary obligations.  The “rules” haven’t changed, and they are:

  1. The Exclusive Purpose Rule: A fiduciary must act in the exclusive purpose of providing benefits to participants and defray reasonable expenses.  Company and personal interests cannot be considered.
  2. The Prudent Person Rule: A fiduciary must perform their duties with the “care, skill, prudence and diligence under the circumstances then prevailing that a prudent person would use acting in a like capacity and familiar with such matters.”
  3. Diversification Rule: A fiduciary must diversify plan investments to minimize the risk of significant losses, unless it is clearly not prudent to do so.
  4. Plan Documents Rule:  Plan terms must be followed as long as they are consistent with ERISA.

If the ERISA fiduciaries have not received fiduciary training recently, that should be done now.   ERISA fiduciaries can face personal liability as well as civil and criminal penalties, so it is very important that they understand their obligations.    The company should also review its fiduciary liability policies to understand the extent of coverage for the plan fiduciaries and communicate that to the plan fiduciaries.

The best way for a fiduciary to prove that they satisfied their obligations is to make sure that their decision-making process is (1) sufficiently documented and (2) reflects that they reasonably believed they were acting in the best interest of participants.  Courts rarely second-guess fiduciaries if those two bars are met.

Step Three –  Other Specific Action Items to Keep in Mind

As highlighted above, the Prudent Person Rule requires that fiduciaries exercise their duties based on current circumstances.  Given the current volatile circumstances, a fiduciary should consider taking these additional specific steps:

  1. Closely monitor the retirement plan investment returns.  Make sure you are regularly getting and reviewing benchmarking reports from the plan advisor.
  2. Familiarize yourself with the various investment funds and make sure that you understand the make-up and risks inherent in the funds.  For example:
    • If your plan has a stable value fund, you should make sure that there are no liquidity issues with respect to that fund.
    • If your plan has a fixed income fund, make sure you understand any mortgage exposure.
    • Given that the DOL has recently approved private equity investments for multi-asset class funds (such as target-date funds, target-risk funds and balanced funds) in defined contribution plans, find out if any of those funds offered under your plan intend to include these kinds of investments. If so, the DOL has set out a roadmap for plan fiduciaries to follow in evaluating these funds, and that roadmap should be followed.
  3. Get regular reporting from the plan’s recordkeeper regarding distributions and investment-election trends by the plan participant.
  4. Decide if additional participant communication should be done regarding educational resources available to them.
  5. If you implemented the COVID-19 CARES Act distribution and loan provisions, determine how to best communicate these to participants and make sure they understand these options.
  6. If you are contemplating changing investment funds or service providers, proceed with caution and make sure there is careful planning to minimize any blackout periods.

Retirement plan fiduciaries can go a long way to comply with their ERISA duties and protect themselves against breach of fiduciary duty claims if they follow the steps described above.  Don’t forget to document your actions and decisions.  Documentation is absolutely key to being able to prove that an ERISA fiduciary complied with their obligations.  Although ERISA does not require perfect results, it does require that you follow a thorough process.   In these turbulent times, it is important to remember these basic rules and to continue to follow them.

About the Author: Christine Gottesman, Esq., Special Counsel – Benefits, Nukk-Freeman & Cerra, P.C. 

Ms. Gottesman specializes in advising clients regarding all types of employee benefits and executive compensation matters. She counsels employers in the establishment and administration of qualified and nonqualified retirement benefit plans and welfare benefit plans including issues of plan design, compliance with ERISA and the Internal Revenue Code and fiduciary responsibility. She advises publicly and privately held corporations in the design and administration of executive compensation arrangements and equity-based compensation plans. Ms. Gottesman’s practice also includes representing employers in employee benefits matters arising in connection with corporation mergers, acquisitions and dispositions.


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