Offering employees a retirement plan, such as a 401(k), Simple IRA, or profit sharing plan of some type, is a great employee benefit and can be an important employee recruitment and retention tool. Businesses that offer retirement plans are providing a good benefit to their employees, however, administering a plan requires specific duties and responsibilities.

The Employee Retirement Income Security Act (ERISA) sets basic rules for employee benefit plans and sets a standard of conduct for those who administer them.

A plan must have one person or entity named as the plan administrator and fiduciary in the written plan document. That person is generally an executive such as the owner in a small business and theCFO or Director of Human Resources in a larger business. Fiduciary status is based on the functions an individual performs for the plan. Any individual who has control or authority over a plans assets or over plan management has a fiduciary duty to the plan regardless of his or her job title. While hiring a third-party administrator (TPA) can help plan administrators carry out their duties, the plan administrators are still responsible for the outcome of actions taken on behalf of the plan. Also, they are responsible for monitoring a TPA, Trustee or Investment Manager or any other service provider appointed to act on behalf of the plan.

A fiduciarys responsibilities include carrying out the following duties prudently:

Act only in the interest of the plans participants and beneficiaries

Follow the plan document

Follow a written investment and risk policy which includes steps to ensure the the plans investment portfolio is diversified and

Pay no more than reasonable plan expenses

To carry out these duties prudently, fiduciaries should have a process to make decisions about the management of plan assets. They should educate themselves about the options available and investigate and compare those options, keep minutes of meetings and other records of how the decisions were made and monitor the performance of the resulting choices.

These responsibilities are a seriousmatter, since a fiduciary may have personal liability to restore any losses or missed profits made through improper use of the plans assets if he or she has not followed basic standards of conduct.

There are certain actions a fiduciary can take to limit (but not eliminate) this liability:

Document the process used to carry out fiduciary responsibilities.

Give participants control over their investments and give the participants at least three different investment options within each investment category.

Give the participants sufficient information to make wise investment choices and allow them to redirect their investments at least quarterly.

Fiduciaries are not allowed to use the plans assets for their own interests or to act on both sides of a plan transaction.

Parties in interest to a plan include plan fiduciaries, the employer, the union, service providers, owners, officers or immediate relatives of the preceding persons. Certain transactions between the plan and a party in interest are prohibited. Prohibited transactions include sales or leases, lending money or furnishing goods or services between the plan and parties in interest.

Lisa Conti-Bacon is a CPA and Audit Manager for Hancock Askew & Co. LLP. She can be reached at LContiBacon AT HancockAskew DOT com or (912)234-8243.