ERISA and Regulatory Requirements
ERISA and Regulatory Requirements
ERISA sets the fiduciary and disclosure framework for private-sector pension plans. The exam tests whether you can identify fiduciaries, apply the duties of prudence and loyalty, spot prohibited transactions, and meet recurring disclosure deadlines.
Fiduciary duties
- ERISA 404(a)(1) requires acting solely in the interest of participants and beneficiaries, with the care, skill, prudence, and diligence of a prudent person familiar with the matter.
- Diversification, plan-document compliance, and reasonable fees are part of the duty.
- A 3(21) investment adviser gives advice and shares fiduciary responsibility; a 3(38) investment manager takes discretionary authority and relieves the named fiduciary of investment selection responsibility, though the fiduciary must prudently select and monitor the manager.
- Co-fiduciaries can be liable for breaches they know about and fail to address.
Prohibited transactions and bonding
ERISA 406 prohibits transactions between a plan and a party in interest, including sales, loans, and use of plan assets. Statutory and administrative exemptions exist, but they must be documented. ERISA bonding generally requires 10% of plan assets, with a $1,000 minimum and a $500,000 maximum (higher for employer securities).
Worked example
The plan sponsor wants to sell a building it owns to the plan. The employer is a party in interest, so the sale is a prohibited transaction unless a specific exemption applies. The administrator should not process the purchase on the theory that the price is fair. Fair pricing alone does not cure a prohibited transaction.
Traps
Treating a settlor decision (for example, plan design) as a fiduciary act; missing the plan's SPD and SMM deadlines; confusing the Summary Annual Report with the annual funding notice; and assuming an exemption applies without documentation.