What to Include in a 401(k) Fiduciary Binder
As an ERISA plan sponsor or administrator, it is imperative to discharge your fiduciary duties in such a manner to limit your liability. Since a 401(k) plan is an Employee Retirement Income Security Act-covered retirement plan, best practices should be followed. Accordingly, there are certain practices you will want to adopt and certain items that should be included in your 401(k) fiduciary binder.
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What are ERISA Fiduciaries?
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An ERISA fiduciary is anyone who exercises discretion over plan assets or who exercises discretion in administering the terms of the plan. ERISA imposes fiduciary duties, such as the duty of loyalty, to act solely in the participants' interests, duty of prudence, duty to diversify investment selections and the duty to follow the terms of the plan, on plan fiduciaries. Moreover, ERISA has established that certain relationships and activities are not allowed. Essentially these prohibited transactions involve interested parties and conflicts of interest. Breaching ERISA's fiduciary provisions results in liability for the fiduciaries that may require them to make good any losses to the plan and restore any profits made by the fiduciary to the plan. There are also other equitable remedies and relief available under ERISA.
What is a Fiduciary Binder?
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A fiduciary binder is a compilation of insurance and documentation that ensures you are meeting your fiduciary obligations under ERISA. A fiduciary liability insurance policy insures the 401(k) plan's trust and those individuals who exercise any discretion with respect to the 401(k) plan. These are usually the trustees of the 401(k) plan, the administrative personnel who run the 401(k) plan and possibly a third-party administrator. The insurance covers judgments, settlements, defense costs and investigation costs in the event of a breach of fiduciary duty or errors in administration. The binder allows you to have documentary proof that you have met your fiduciary duties if they are ever called into question.
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What Should be Included in an ERISA Fiduciary Binder?
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Although each plan may have specific reports or documentation that should be included, there are general basics that every 401(k) plan should have in its fiduciary binder. The binder should contain all documents that govern the operation of the plan. Those documents start with the plan documents and amendments, all plan procedures and any required participant communications and mandated governmental filings, such as the annual Form 5500 report. Copies of the insurance policies and fidelity bond with any amendments, riders or other related documents should be included. The binder must have the plan's investment policy statement and other investment rules. The binder should include all up-to-date contracts with service providers. Since fiduciary duties are extremely sensitive with respect to plan assets, the binder should have all journals and ledgers, current statements of plan assets and accounting for plan expenses. Lastly, the fiduciary binder should include all meeting minutes and documents that assist the plan administrator in making benefit determinations, especially if there are benefit denials.
Other Considerations in Limiting Liability for ERISA Plans
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In order to protect your plan from all possible risks, insurance policies -- in addition to fiduciary liability insurance and a fidelity bond -- will be needed. Depending on the particular circumstances of your plan, you may wish to consider policies covering fire and theft, employment practices, workers' compensation, legal malpractice or general and automobile insurance.
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