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ERISA fiduciaries and their outsourcing

When Californians choose to set up certain retirement plans, they are not without safeguards established by the federal government. The Employee Retirement Income Security Act of 1974 (ERISA) mandates certain minimums standards, which must be complied with by plan administrators in the private sector. ERISA protects individuals by requiring those who control plans to be held to the highest fiduciary standards. The law also requires that individual participants be kept informed about their plans and able to submit grievances in order to secure their plan benefits. In the event that a fiduciary breaches certain duties outlined under ERISA, the same is liable to an individual participant for their breaches. A person who sues under the law may be entitled to attorney fees.   

Under ERISA, the person who manages and controls the plan is required to administer it according to the requirements of law, ensure the plan functions properly, and make prudent investments with the funds held in trust. As reported by the Advisory Council on Employee Welfare and Pension Benefit Plans, many of the duties of trustees are often outsourced, especially those dealing with investment and administration. Where matters pertaining to investments, including strategy, selection, management and allocation are outsourced, a co-fiduciary may become jointly and severally liable for a breach.

Areas of outsourcing employed by plan administrators often include preparing required ERISA government forms and keeping records. Also outsourced are the processing of contributions, distribution and participant claims for benefits. Access to better technology is one of the stated reasons for outsourcing recordkeeping, transactions, reporting and plan access.

Participants in California may be leery upon learning that several “hands” have touched their plans. However, the duties imposed on plan administrators by ERISA as a practical matter may not only necessitate outsourcing but also prove to be a benefit to individual participants.

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