Basic Terms and Issues

An explanation of ERISA

What Is ERISA?

General terms and information about ERISA

Topics of interest to pension, profit sharing, 401(k) and other ERISA plan sponsors, administrators, and other fiduciaries.

Who is responsible when ERISA assets go south? - The fiduciary

Discretion over plan assets: A fiduciary is anyone who exercises discretionary control or authority over plan management or assets.
Discretion in plan administration: A fiduciary is anyone with discretionary authority or responsibility for the administration of a plan.
Investment advice for compensation: A fiduciary is anyone who provides investment advice to a plan for compensation or has any authority or responsibility to do so.
Typical fiduciaries include plan trustees, plan administrators and members of a plan's investment committee.

Once I'm a fiduciary, how must I act?

Exclusive purpose: A fiduciary must manage the plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries
Prudence and diversification: A fiduciary must act prudently, and must diversify the plan's investments to minimize the risk of large losses.
Conflicts of interest: A fiduciary must avoid conflicts of interest.
Related Party transactions: A fiduciary must not generally engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, persons who provide services to the plan, or the plan sponsor.
Responsibility: A careless fiduciary may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets.

Making plan investment decisions: What rules must be followed when investing other people's money?

Prudence: Does a fiduciary's investment decision have to be right? Factors considered in determining whether the fiduciary acted prudently.
Solely in the interest of the plan: What interests, other than those of the plan's participants and beneficiaries, should a fiduciary consider?
Investment risks: What investment risks can be taken?

Is the insurance company a fiduciary?

Guaranteed investment contracts: New money/old money, contributions and earnings.
Guaranteed annuity purchase rates: Death, disability, retirement and other terminations.
Discretion allowed: Guarantees, earnings, annuity purchase rates, surrender charges, market value adjustments.
The role of insurance in tax qualified plans: Commissions: initial and renewal. Taxation: the "inside" death benefit versus the "outside" group term death benefit.

"Hidden" Charges and investment contract provisions

Purchase rates: Indirect costs and expenses, "guaranteed" rates of return-initial and subsequent years.
Termination charges: Unrecovered charges and expenses, set-up fees, internal and external sets of books.
Unbundling the "bundled" tax qualified plan retirement package: fees, costs, expenses; the plan, summary plan description, forms 5500, employee contributions, adviser compensation.

Investment contract exit strategies

Contract provisions: Run off, single sum values, "bait and switch."
Contract construction: Artful drafting, contract of adhesion.
Unenforceable provisions: Discretion exercisable in favor of the insurance company.

Tax qualified plans of deferred compensation

The defined benefit plan: The funded promise to pay a fixed future income stream. "...the present value of a series of future contingent payments is a function of the rate of the investment return, or of interest rate at which the payments are discounted" (actuarial equivalency).
The defined contribution plan: Current defined contributions intended, but not promised to provide a termination benefit. "...the amount of which, if any, depends on the rate of return, if any" (a savings account).