best_practices

EFA’s CORE PRINCIPLES

A 401(k) plan is first and foremost a mechanism
by which an employer shares its success with its employees.

ERISA Fiduciary Administrators LLC (“EFA”) was established on two core principals:

  1. An employer-sponsored retirement plan should engage a vendor to provide only the services needed for its efficient operation, pursuant to a fair and straightforward administrative services agreement that provides for no more than reasonable compensation; and
  2. Each vendor must be regularly monitored and evaluated to insure that its services satisfy the needs of the plan, it receives only reasonable compensation and it maintains appropriate internal controls to ensure the accuracy and timeliness of its work.

Managing the plan, of course, routinely requires the Plan Administrator to exercise discretionary control and authority over the day-to-day administration of the plan.  In the regulatory environment in which the plan must operate, it is not feasible for most employers to exercise that control and authority to the standards demanded by ERISA without the support of third party vendors providing record-keeping and other administrative services.  When appointed as the Plan Administrator, or supportive administrative fiduciary role, EFA accepts the corresponding fiduciary responsibility.

We act as the watchdog over the plan’s administrative vendors, insuring that they individually deliver quality services at a reasonable fee.  We also act as legal counsel to the plan, insuring that the vendors collectively maintain the plan in compliance with prevailing legal requirements at all times, conducting fiduciary committee meetings, maintaining the committee meeting minutes and records, responding to all government inquiries or examinations, and keeping all inside fiduciaries apprised of relevant legal matters.

EFA’s Basic Standards of Conduct

EFA scrupulously follows the fiduciary standards set out in Section 404(a)(1) of ERISA.  In a nustshell these are:

  • Loyalty:  The Plan Administrator has a duty of loyalty to the plan and must perform its fiduciary functions for the exclusive benefit of the plan’s participants and their beneficiaries;
  • Prudence:  The Plan Administrator is held to a high standard in deciding to act or not to act and must weigh his actions or nonactions with the care, skill, prudence and diligence of a similarly situated prudent expert;
  • Follow Governing Documents:  The Plan Administrator has a duty to perform its fiduciary functions in a manner that abides by the terms of the plan’s governing instruments; and
  • Avoidance of Prohibited Transactions:  The Plan Administrator has a duty to prevent that plan from entering into transactions with a specified group of persons or entities, which ERISA refers to as “Parties in Interest.”  Furthermore, the Plan Administrator has a duty to avoid conflicts of interest with the plan and entering into transactions involving plan assets that constitute self-dealing or receipt of bribes and kickbacks from third parties.

Monitoring Vendor Independence

EFA closely monitors all compensation arrangements and ownership relationships among and between the plan’s vendors and investment managers.  The bulk of the data we use comes from each vendor’s required annual ERISA Sec. 408(b)(2) disclosures.  We monitor each vendor’s compliance with Sec. 408(b)(2) and carefully scrutinize the data to illuminate the sources and amount of fees paid to each vendor and any conflicts of interest that the vendor has not otherwise disclosed.

EFA establishes essential fiduciary controls and procedures.   We report to the plan sponsor all actual or potential vendor conflicts of interest and sources of unauthorized or potentially unreasonable compensation.  If the vendor cannot or will not eliminate the conflict, reduce its fees, or otherwise unwind any detrimental impact that it has had on the plan, then, after full consultation with the plan sponsor, EFA will undertake a competitive bidding process to select a replacement.

EFA maintains a strict code of vendor independence.  We do not, and will never, have affiliations with, or accept any form of compensation directly or indirectly from, persons or entities in the investment advice or financial services industry, or entities that otherwise provide services to the plan, e.g. banks, insurance companies, mutual fund companies, third party administrators, consultants, broker-dealers, record-keepers, trustees, etc.