Know your fiduciary responsibilities as an employer

If your company offers an employee retirement plan, you, as the plan sponsor, have certain responsibilities to your plan participants. And because of the prevalence of 401(k) plan non-compliance issues, the Department of Labor is paying close attention to how trustees manage their fiduciary duties.

To increase transparency and protect plan participants, the Employee Retirement Income Security Act (ERISA) includes many directives about how plans should be operated.

There are three basic requirements:

• The plan must offer at least three diversified investment options with varying degrees of risk and return.

• There are certain disclosures and information that must be provided to participants – some automatically in advance of investment, and others upon participant request.

• Participants must be able to give investment instructions to a fiduciary, and they must have the opportunity to change investments with appropriate frequency.

As a fiduciary, you are also responsible for making sure your employee participants are aware of fees paid by the plan. Beginning in August, ERISA Section 408(b)(2) requires fiduciaries (you) notify participants of all fees typically paid by the plan. You must also notify participants quarterly of the actual expenses incurred.

In addition, you must disclose detailed fund performance data, benchmarks and expense ratios annually. The deadline for investment plan service providers to deliver to employers the contracts containing details about their fees is July 1, 2012.

Naturally, all of this brings some record keeping duties. Among other administrative duties, you are required to keep your plan’s Form 5500 filings for at least six years. Records including annual reports and a census of participants must be kept for six years, too.

When you look back at the Enron debacle and others, it’s easy to see what prompted ERISA. And, while your fiduciary duties are serious and significant, they’re also fairly straightforward. If they seem complicated, remember that your accounting firm can help.

John Stern, CPA/PFS is the managing partner for PKS & Company, P.A., Certified Public Accountants, with offices in Salisbury and Ocean City, Md. and Lewes, providing audit, accounting, tax, retirement plan administration and personal and business financial planning services. Go to www.pkscpa.com or call 410-546-5600.