fiduciarystructure

PLAN MANAGEMENT

The Plan Administrator’s indispensible role,
as described in Section 3(16) of ERISA, focuses on
the day-to-day management of the plan.  

Historically, an employer established a retirement plan for its employees with the understanding that the day-to-day administrative work of managing the plan would be sub-contracted to independent service providers (record-keepers, TPAs, trustees, custodians, consultants, etc.).  Many plan sponsors confuse the plan’s TPA,  or a broker-dealer or a mutual fund company that provides record-keeping services to the plan, with a party acting as the “Plan Administrator,” which is a fiduciary role defined in ERISA Sec. 3(16).  Having reviewed thousands of service provider agreements, we know these documents are not models of clarity and there is little wonder that plan sponsors frequently misconstrue them as delegations of fiduciary responsibility.  Invariably, however, buried in the fine print of these agreements are numerous representations that the service provider is not a fiduciary and performs only  ”ministerial” and “non-fiduciary” functions.  The typical agreement even includes an indemnification provision in which the plan sponsor holds the service provider harmless from any damages that result from fiduciary breach claims.   As a legal matter, the vendor is agreeing to perform a variety of essential administrative functions, but is categorically refusing to accept responsibility to act as the plan’s “Plan Administrator” or in any other fiduciary capacity.

Unfortunately, the vendor has little incentive to correct the plan sponsor’s misunderstanding on this vital point until a dispute erupts.  This situation allows the vendor to operate without appropriate oversight.  The end result is a classic finger-pointing problem, leaving the plan’s fiduciary governance structure at risk because each of the relevant parties think some one else performs this central role.

A similar scenario confronted plan sponsors regarding the investment of plan assets.  In response, over the last ten years, a trend toward reliance on outside or independent Investment Managers and investment advice fiduciaries emerged.  This trend has accelerated as plan sponsors increasingly recognize that they simply lack the “in house” expertise to perform these essential functions to the standards demanded by ERISA and their corporate executives and outside directors grow increasingly concerned about their personal exposure to fiduciary liability.  These same concerns apply no less to the functions performed by the Plan Administrator.