WEDNESDAY, APRIL 1, 2015
We've discussed who a fiduciary is and what it means to be a fiduciary. Now let's talk about how to limit your liability...
What steps can fiduciaries take to limit their liability?
Fiduciaries can limit their liability in certain situations. One way fiduciaries can demonstrate that they have carried out their responsibilities properly is by documenting the processes used to carry out their fiduciary responsibilities.
A fiduciary can also hire a service provider or providers to handle fiduciary functions, setting up the agreement so that the person or entity then assumes liability for those functions selected. If an employer contracts with a plan administrator to manage the plan, the employer is responsible for the selection of the service provider, but is not liable for the individual decisions of that provider. However, an employer is required to monitor the service provider periodically to ensure that it is handling the plan's administration prudently.
As an additional protection for plans, every person, including a fiduciary, who handles plan funds or other plan property generally must be covered by a fidelity bond. A fidelity bond is a type of insurance that protects that plan against loss by reason of acts of fraud or dishonesty on the part of individuals covered by the bond. Many individuals dealing with group health plans that pay benefits from the general assets of an employer or union (unfunded) or group health plans that are insured (benefits are paid through the purchase of a group health insurance contract from a licensed insurer) may be eligible for exemptions from the fidelity bonding requirements.
In addition, the DOL maintains a voluntary correction program for fiduciary breaches. The Voluntary Fiduciary Correction Program (VFCP) allows plan officials who have identified certain violations of ERISA to take corrective action to remedy the breaches and voluntarily report the violations to the DOL without becoming the subject of an enforcement action.
Coming soon, Part 4 - How Do The Fiduciary Duty Rules Affect The Plan Operation?
From LEGISLATIVE BRIEF Brought to you by The Bramlett Agency, March 2015, Zywave.
This information is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
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