ERISA Tips: ERISA 101

ERISA has been described as “a complex statute to navigate,” and a recent blog entry offers a look at the basics — ERISA 101.

In “ERISA: Thou Shall Not Pay Excessive Fees!,” an entry in the CKR Law blog, Jose Jara, the firm’s Employment, ERISA and Employee Benefits Practice Group Leader, includes a discussion of the basics of meeting ERISA obligations.

“Complying with ERISA is no easy task given the complexity of the statute and the continuing rapid development of the law due to a number of factors,” writes Jara. He attributes the difficulty in meeting fiduciary duties to the fact that that entails “fact-intensive circumstances” and that he law may vary depending on the jurisdiction in which a lawsuit is brought. “It is thus often difficult to predict whether a particular course of action will shield the fiduciary from liability or make the fiduciary an easy target for the DOL or plaintiff’s bar,” he says.

The first “crucial step,” Jara says, is to determine who the plan fiduciaries are. “A fiduciary under ERISA is someone who has the discretionary authority or control over the management of assets or the administration of the plan,” Jara writes. And one can become one by being designated a “named” fiduciary or by inadvertently becoming one — a “functional” or “de facto” fiduciary — due to having discretion or control over a plan.

A fiduciary must discharge certain duties, Jara says, including acting:

• for the exclusive purpose of the plan;
• with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use under such circumstances; and
• in accordance with the plan’s terms.

A fiduciary also must diversify plan investments, he adds.

“While no one can predict exactly which investments will out-perform other investments or which decision is the best, prudence requirements may be met by examining investments for appropriate factors such as the risk of loss, the opportunity for return, diversification, liquidity, current return and projected return,” writes Jara. And he notes that guidance from the Department of Labor says that appropriate consideration — or alternatively, procedural due diligence — means ensuring that investment decisions must be reasonable and applicable to the design of the plan.

Jara also notes that the selection process is not the end of fiduciary duties. “There is a continuing duty,” he reminds, “to monitor investments or service providers after the selection process.” He adds the under the Supreme Court’s ruling in Tibble v. Edison, 135 S. Ct. 1823, 1829 (2015), “ERISA does not require the cheapest investment, but if a more expensive investment is selected, fiduciaries must document their consideration of both investments and state the reasons why a more expensive investment is in the plan’s overall best interest.”

Editor’s Note: ERISA Tips is a feature provided with you in mind — to make the newsletter more useful to you! If you have any content for ERISA Tips or the 403(b) Advisor that you would like to contribute or suggest, please contact John Iekel, editor of the 403(b) Advisor, at [email protected].