401k Plans » Employer Obligations When Transferring 401k Plans

In light of the recent focus on fiduciary liability, most business owners and executives should give more thought to the legal liability that they might face when offering a retirement plan. Many employers treat retirement plans as if they were any other product or service, without being aware of their fiduciary obligations.

Owners and executives making decisions regarding employee retirement plans are by definition fiduciaries, and are personally liable for the management of their plans. Administering a retirement plan and managing its assets require certain actions and involve specific responsibilities. The Department of Labor, the Internal Revenue Service and the federal courts have defined the proper way to manage retirement plans based on a term called “procedural prudence”.

While the statutes are vague on what constitutes “procedural prudence”, case law on this issue is clear. Procedural prudence occurs when fiduciaries establish and follow sound processes and document their actions so their decisions can withstand close scrutiny.

A fiduciary is expected to be a “prudent expert”. If the employer is not capable of fulfilling this duty because of a lack of education or training, the employer is required to hire an independent expert. However, the hiring of an independent expert does not in itself transfer liability.

The key in transferring liability is to transfer discretion. The Directed and Co-fiduciary trustee services generally do not accept discretion and as a result they offer little protection. Remember, the one that has discretion is the one with the liability.

The best way to transfer the liability is to hire a discretionary trustee working with an independent advisor. In this instance, you have a trustee that accepts discretion over plan assets and an independent expert who provides the plan sponsor with the necessary information to fulfill their fiduciary responsibilities. Plan providers that accept fiduciary responsibility must act in the best interest of plan participants.

Source: www.articlesbase.com