What Is a Fiduciary Under ERISA?
When you enroll in an employee benefit plan, you trust whoever manages it will act in your best interests. These managers, known as fiduciaries, play a vital role in safeguarding the benefits employees have worked hard to earn.
Because of their important work, federal law binds fiduciaries to certain standards for responsible plan management. Under the Employee Retirement Income Security Act (ERISA), fiduciaries can face legal consequences if they fail to exercise care and integrity in their management.
If you suspect that your employer or plan administrator has failed their fiduciary duty, knowing your rights and options under ERISA is crucial. In this blog post, we’ll define what it means to be an ERISA fiduciary, explain their responsibilities, and discuss what happens when they fail to fulfill them.
Who Is a Fiduciary Under ERISA?
In broad terms, an ERISA fiduciary is someone with control over an employee benefit plan or its assets. Under federal law, the ERISA fiduciary definition includes any person or entity who:
- Has authority over the administration of benefits to employees,
- Exercises control over a plan’s assets,
- Advises about investments in the plan, or
- Is named as a fiduciary in a plan’s document.
Many different people and organizations hold fiduciary responsibilities under ERISA. Some of them include:
- Named fiduciaries
—designated specifically by name to hold the central authority over a plan and all other fiduciaries; - Employers—sponsor group benefits plans and facilitate employee access to them;
- Plan administrators—oversee the day-to-day operations of the plan;
- Trustees—hold the assets of a plan in a trust; and
- Investment managers—decide how to invest the plan’s funds.
Some fiduciaries have more authority and responsibility than others. For example, the named fiduciary is generally considered at the top of the hierarchy since they can appoint other fiduciaries and administer the plan.
The law focuses on functions, not titles, to determine who qualifies as a fiduciary under ERISA. If someone decides to manage a plan, invest its assets, or administer its terms, they’re likely a fiduciary.
What Are Fiduciary Duties Under ERISA?
ERISA outlines specific standards of professional behavior and oversight for fiduciaries who manage employee benefits. The following are the primary fiduciary duties specified by ERISA:
- Duty of loyalty. Fiduciaries must act in the interests of plan participants and beneficiaries and ensure that any decisions prioritize their benefits.
- Duty of prudence. Fiduciaries must act with the care, skill, and sound judgment expected of a knowledgeable professional in the same situation.
- Duty to diversity investments. Fiduciaries must ensure plan investments are sufficiently diversified to minimize the risk of significant losses.
- Duty to follow plan documents. Fiduciaries must administer the plan according to the terms and specifications of its ERISA-compliant governing documents.
All ERISA fiduciaries must follow federal law’s standards for responsible management. These regulations ensure unnecessary costs, investment risks, or conflicts of interest don’t negatively impact employees’ future benefits.
When Does a Fiduciary Fail in Their Duties?
Unfortunately, not all fiduciaries fulfill these legal obligations. Some ways a fiduciary can violate their legal duties include:
- Misusing plan assets—using employee assets for personal benefit or purposes unrelated to the plan;
- Acting in conflict with employee interests—pursuing investments where the fiduciary has a personal financial interest or gain;
- Failing to diversify investments—concentrating plan assets in a single investment area without sufficient reasoning;
- Making imprudent investment decisions—failing to act with the care, skill, and diligence of an expert when managing investments;
- Ignoring plan documents or terms—taking actions outside the authority granted by the plan’s governing documents;
- Providing incomplete or misleading information—not sharing accurate, timely, or complete details on the plan or changes to it with participants;
- Neglecting to monitor service providers—failing to vet third-party administrators for performance and fair fee assessment; or
- Improperly processing ERISA claims—delaying claims or denying benefits to participants without reasonable justification.
When an ERISA fiduciary fails to abide by their legal duties in these ways, they can face serious consequences, including expensive civil penalties. Employees who suffer from a breach of fiduciary duties can also sue the person or entity and hold them financially responsible for any assets lost by their abuse of power. Beyond financial consequences, fiduciaries who violate ERISA may be removed from their roles and barred from holding such responsibility in the future.
A Trusted Advocate for Your Rights and Benefits
All employees should feel informed and empowered when they put their assets and futures in the hands of fiduciaries. You have options if you suspect your employer or plan administrator has violated their duty to you. Legal action can help you recover lost benefits and hold fiduciaries accountable.
John Peace of the Peace Law Firm has over 16 years of experience fighting for South Carolina residents who’ve suffered mistreatment by ERISA fiduciaries. With a deep understanding of ERISA law, we understand the tactics fiduciaries and insurers use to avoid accountability.
We only represent employees—never insurers or employers—and are prepared to work tirelessly to protect your rights. Contact our office today for a free, no-obligation consultation if you believe a fiduciary violated your ERISA rights.
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