Fiduciary Responsibilities
Employers must act in the best interests of the plan participants. This includes selecting and monitoring plan investments and service providers carefully. Failure to adhere to these fiduciary responsibilities can lead to lawsuits or regulatory action, increasing costs due to legal fees and potential penalties.
ERISA requires detailed reporting and disclosure to both the government and participants. The administrative tasks include filing annual reports, providing summaries of plan descriptions, and delivering individual benefit statements. These requirements add to the administrative burden and may necessitate hiring additional staff or external services.
Compliance Auditing and Costs
To ensure compliance with ERISA, plans may undergo audits, especially if they have 100 or more participants. Audits must be conducted by an independent qualified public accountant, which can be costly. The complexity of compliance with the multitude of ERISA regulations also means that employers often need to seek legal advice, further escalating costs.
Employers that want to protect plan fiduciaries against claims of mismanagement will want to have fiduciary liability insurance. The cost of this insurance varies depending on the plan size and coverage limits
If participants believe their benefits have been mismanaged or that the plan has not complied with ERISA, they may file lawsuits. Defending against these suits can be expensive, even if the employer is ultimately found not to have violated ERISA.
Investment Management Fees
Part of the fiduciary duty is to ensure that the fees for managing plan investments are reasonable. Employers must regularly review these fees, which may involve consulting with financial advisors, potentially increasing the cost of plan administration.
Penalties for Non-Compliance
Non-compliance with ERISA can result in significant penalties. These can include fines from regulatory agencies (like the Department of Labor), as well as the costs associated with corrective measures to bring the plan into compliance.
