The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with an advisor in Indiana is representative of a common question on plan committee members:
“Can an individual member of a 401(k) plan committee have personal fiduciary liability?”
Highlights of the Discussion
- A plan committee member may be a plan fiduciary and, consequently held personally liable to the plan, if he or she is granted or exercises discretion in the operation of a retirement plan subject to ERISA.
- According to Department of Labor (DOL) Interpretive Bulletin 75-5, if the governing plan documents state the plan committee controls and manages the operation and administration of the plan and specifies who shall constitute the plan committee (either by position or by naming individuals to the committee), then such individuals are named fiduciaries of the plan pursuant to ERISA §402(a) (see page 212 of linked document).
- A number of court cases have found that a plan committee member may be a functional fiduciary of the plan, and subject to personal liability, if he or she exercises discretion in the administration of the plan (see Gaunt v. CSX Transp., Inc., 759 F. Supp. 1313, N.D. Ind. 1991).
- Pursuant to ERISA §409 (see page 250 of linked document): “Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries … shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.”
- Having a committee charter may help mitigate fiduciary liability for the committee members by carefully outline their role and responsibilities. Please see the June 2019 Case of the Week, “401(k) Plan Committee Charter,” for best practices.
Conclusion
A plan committee member may be a plan fiduciary and, consequently held personally liable to the plan for loss. Having a committee charter may help mitigate fiduciary liability for the committee members.
Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.
©2021, Retirement Learning Center, LLC. Used with permission.
