ERISA Plan Sponsors Hire Third-Party Fiduciaries
More ERISA Plan Sponsors Hire Third-Party Fiduciaries
Many employees in Franklin, Ohio, understand how challenging it is to earn money. As they look toward a secure retirement, their employers may offer a defined benefit plan in the form of ERISA. The employer, who is responsible as a plan sponsor, has a fiduciary responsibility to act on behalf of and in the best interests of the beneficiaries. It makes sense because employees pay part of their salaries to fund the Employee Retirement Income Security Act of 1974.
Because ERISA is a distinct form of investment and adheres to strict regulations, the duty of the plan’s fiduciary can be tough. It is a common practice for plan sponsors to hire an investment advisor to manage defined benefit plans. That was the case according to a Vanguard study.
A current trend is expected to grow in the field of managing defined benefits like ERISA and 401(k) plans: hiring third-party fiduciaries. In a Franklin Templeton/Chatham Partners study, 81 percent of plan sponsors in the survey reported that their investment advisors acted as the fiduciaries of the benefit plans. Of these sponsors, 63 percent do not know what fiduciary roles their advisors are working on.
That is a problem. For one, plan sponsors have a fiduciary risk, even though they do not oversee the management of the plan and rely on advisors. Plan sponsors should be diligent when assigning fiduciaries to the plan. If the sponsor fails to check the competencies of the advisor before giving fiduciary responsibilities, the sponsor will not be protected from litigation and liabilities, if something goes wrong with the plan.
The mismanagement of plan benefits can be frustrating. Ohio employees may consult their employers or plan sponsors to provide them information about their ERISA plan. In the event of suspected mismanagement, it should be communicated to ensure that the plan stays on its goal: to serve the interests of the beneficiaries.