Primary Duties of an ERISA Fiduciary

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Mon, Aug 09, 2010
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ERISA Section 404(a) defines the primary duties of an ERISA fiduciary:

  1. The Exclusive Benefit Rule – An ERISA fiduciary must act solely in the interest of the plan's participants and beneficiaries while defraying reasonable plan expenses.

  2. The Prudent Person Standard – An ERISA fiduciary must act with the care, skill, prudence, and diligence under the circumstances that a prudent man acting in a similar capacity...

  3. Diversification – An ERISA fiduciary must diversify the investments of the plan unless it is clearly prudent not to, knowing that by definition an ESOP is "designed to invest primarily in qualifying employer securities" and that Courts Almost Always Give Presumption of Prudence For Company Stock in ESOPs. You should also be aware of the ESOP Diversification Rules.

  • Follow the Plan Documents – A fiduciary must act in accordance with the plan documents.
  • Here is the relevant text:

    ERISA Section 404(a), 29 U.S.C. Section 1104(a) – Fiduciary Duties – Prudent man standard of care

    (a) Prudent man standard of care

    (1) Subject to sections 1103 (c) and (d), 1342, and 1344 of this title, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—

    (A) for the exclusive purpose of:

    (i) providing benefits to participants and their beneficiaries; and

    (ii) defraying reasonable expenses of administering the plan;

    (B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;

    (C) by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and

    (D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III of this chapter

    Topics: ESOP Corporate Governance, ESOP, employee stock ownership plan

    Aaron Juckett, CPA, CPC, QPA, QKA
    Written by Aaron Juckett, CPA, CPC, QPA, QKA

    Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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