ERISA Fiduciary Liability Facts

Fiduciaries are required to act in goodwill on behalf of their pension or employee benefit plan’s participants, notes ERISA fiduciary liability expert Mark Johnson.

The Employee Retirement Income Security Act (ERISA) establishes several fundamental rules for fiduciaries of either pension or employee benefit, as outlined below.

1. Exclusive Benefit Rule: Fiduciaries must act solely in the interest of plan participants and beneficiaries and with the sole purpose of providing benefits to them.

2. Prudent Man Rule: Fiduciaries must carry out their duties with prudence. If a fiduciary lacks expertise in a particular area, then they will want to hire a qualified plan service provider that can carry out the process in an expeditious manner.

3. Diversification Rule: A fiduciary must diversify investments in order to minimize risk of loss unless it would be considered prudent to not diversify investments

4. Plan Document Rule: A fiduciary must follow plan documents, unless said documents are inconsistent with ERISA.

Fiduciaries are also required to document the selection and monitoring process when researching and employing an outside service provider for their plan. In fact, hiring and evaluating service providers is one of the primary functions of a fiduciary.

Fiduciaries are also responsible for holding plan assets in trust, if the plan has any assets.

Fiduciaries must also be knowledgeable of their plan’s claims procedures. Even though many plans hire benefits professionals (like a third party administrator) or insurance companies to process claims, it is essential that fiduciaries understand claims requirements and the Department of Labor’s timeframe for making and providing notice of the claim. Fiduciaries should also understand the standards for appealing benefit denials.

They also bear the general responsibility of paying only reasonable plan expenses.

With these responsibilities, fiduciaries also face potential liability.

ERISA Fiduciary Liability

Fiduciaries that deviate from the standards dictated by ERISA and the U.S. Department of Labor may be held personally liable to restore any losses to the plan, or to restore profits generated by improper use of the plan’s assets.

“Most importantly, employers should have a clear understanding of fiduciary responsibility, even if they aren’t the plan’s fiduciary, and in-depth knowledge of all benefit plan’s provisions.”
-- Mark Johnson, Ph.D., J.D., ERISA Group Health Plan Expert



Contact ERISA Expert Dr. Mark Johnson


You can reach Dr. Johnson via email or by phone at 817-909-0778. He is available to confidentially discuss a benefits matter.


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