This chapter is about the responsibilities of fiduciaries. Fiduciaries must act in accordance with ERISA guidelines and the rules of your plan. The following questions are addressed:
- What Protections Do The Fiduciary Requirements Of ERISA provide?
- When Can Your Choose Your Own Investments?
ERISA protects your plan from mismanagement and misuse of assets through its fiduciary provisions. ERISA defines a fiduciary as anyone who exercises discretionary control or authority over plan management or plan assets, anyone with discretionary authority or responsibility for the administration of a plan, or anyone who provides investment advice to a plan for compensation or has any authority or responsibility to do so. Plan fiduciaries include, for example, plan trustees, plan administrators, and members of a plan s investment committee.
The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest. In other words, they may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers or the plan sponsor.
Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets. Courts may take whatever action is appropriate against fiduciaries who breach their duties under ERISA including their removal.
In some defined contribution plans, a group or an individual makes all the investment decisions for the plan's assets. In certain defined contribution plans, however, plan officials may decide to provide a number of investment options, and they may ask you to decide how to invest your account balance by choosing among those investment options.
The Department of Labor has established rules about plans that permit participants to direct their own investments. Under these rules, if, and only if, you truly exercise independent control in making your investment choices, plan officials will be excused from the fiduciary responsibility for the consequences of your investment decisions. A plan under which you in fact exercise independent control over the investment of your individual account is called a 404(c) plan (after § 404(c) of ERISA). If you are a participant in a 404(c) plan, you are responsible for the consequences of your investment decisions, and you cannot sue the plan officials for investment losses that result from your decision.
You are entitled to receive a broad range of information about the investment choices available under a 404(c) plan. Thus, a plan that intends to relieve plan officials of fiduciary duties over investments must inform you of that fact. Also, the 404(c) plan must give you sufficient information about investment options under the plan for you to be able to make informed decisions. The information you are entitled to receive without asking includes the following:
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