Here are five simple questions for which you should know the answer if you serve on the board of directors of a company that sponsors a 401(k), pension, ESOP, or other tax-qualified retirement plan:
1. Who is the trustee of your retirement plan?
2. Who is the plan’s administrator?
3. Which of the above, or another, makes investment decisions relating to the plan?
4. Where are we tracking and documenting compliance with the fiduciary duty rules that ERISA applies to our plan, our company, its executives, and us?
5. Are we potentially subject to personal liability under ERISA for failing to monitor all of the above?
The key word above is ERISA, which is short for the US Employee Retirement Income Security Act of 1974. Although often criticized as being too much of a shield for employers, ERISA nevertheless has teeth that mainly come from the application of fiduciary (trust) principles to those who make administrative and investment decisions relating to retirement and welfare plans. Corporate boards would seem a step removed from responsibility for these matters. They are not.