Fiduciary Counseling

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Fiduciary counseling

Administrators of employee benefit plans are responsible for making sure their plan operates within the guidelines set forth under the Employee Retirement Income Security Act of 1974 (ERISA). They also owe a fiduciary duty to the plan's beneficiaries and could face penalties or legal challenges for fiduciary violations. ERISA regulations for employee benefit plans can be complex and require regular monitoring. Experienced fiduciary legal counsel can help plan administrators and employers stay in compliance with all fiduciary duties and avoid costly legal action.

ERISA Fiduciary Regulations

Most voluntarily established private pension and health plans are regulated by ERISA. ERISA sets the minimum standards for these plans, including defined contribution plans, defined benefit plans, Employee Stock Ownership Plans (ESOPs), 401(k)s, Profit Sharing Plans, and Simplified Employee Pension Plans (SEPs). Under ERISA, plan managers owe a fiduciary duty to plan members.

A fiduciary duty is a legal obligation to act in the best interests of another. Fiduciaries for retirement benefit plans have certain responsibilities to represent the best interests of the plan's participants. For example, under ERISA, plan fiduciaries are required to act prudently in performing fiduciary functions, “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” This duty is commonly known as the fiduciary's duty of care.

As a fiduciary, administrators are charged with certain duties, including defraying the reasonable expenses of administering the plan, diversifying the investments so as to minimize the risk of large losses, following the plan requirements, and avoiding conflicts of interest. Also included as part of the fiduciary's responsibilities are monitoring investment performance and selecting investment options and service providers.

When a plan fiduciary fails to carry out their legal responsibilities, they may be held personally liable to plan participants. Employees have a right to take legal action against the plan manager, plan administrator, or those who control plan assets following a breach of their fiduciary duties. Fiduciaries may be liable for lost earnings or improperly received profits.

Areas of Fiduciary Violations

A fiduciary has a primary responsibility to act in the best interests of the plan's participants. Any actions taken that appear to conflict with this duty may be seen as a breach. In addition, changing ERISA regulations and court decisions can make it difficult for plan fiduciaries to maintain compliance while looking out for the best interests of plan members. However, there are some areas that may be more prone to ERISA violation scrutiny than others.

Company stock offerings for retirement plans can increase the risk of fiduciary litigation. An individual security, like a company stock, is generally more volatile compared to more diversified investments. The decision to offer company stock as part of a 401(k) plan investment option should be carefully reviewed and documented. To encourage diversification and reduce potential risk, the plan may also want to limit the amount of company stock a participant can hold as part of their plan account.

Another area commonly the subject of fiduciary disputes involves fund fees. Many plan participants focus on investment returns rather than fund fees that regularly subtract money from their accounts. However, a small difference in fund fees can make a significant impact on the account balance over the life of the plan. A careful review of all the plan investment fees should help a fiduciary identify excessive fees.

Other transactions that may invoke a fiduciary violation include delinquent participant contributions, below market interest rate loans to parties in interest, purchase of assets by plans from parties in interest, sales of assets to parties in interest, benefit payments based on improper valuation of assets, and payment of excessive or unnecessary compensation.

Counseling for Plan Fiduciaries

Plan providers can benefit from fiduciary counseling at any time. Proactively, attorneys can counsel plan providers on the operation and administration of their benefit plan before any violations occur. This can help avoid a potential breach of fiduciary duty by discussing the current transactions and investments that the plan provider has concerns about. Avoiding a violation in the first place is the most cost-effective way to handle potential fiduciary breaches.

When a plan participant claims a fiduciary has breached their duty, this dispute has the potential to escalate to an ERISA claim or even formal litigation. Fiduciary counseling can help plan providers negotiate these disputes to avoid litigation and protect the interests of plan members. Fiduciary counseling can also benefit plan providers that are engaged in ERISA administrative claims and state or federal litigation. This includes identifying fiduciary violation transactions, taking corrective action, negotiating settlements, or litigating state and federal claims.

Voluntary Fiduciary Corrections

A comprehensive review of the operation of a benefit plan can identify potential ERISA fiduciary violations. Although the plan administrator may have never been aware of the violations, once discovered, they can take voluntary actions to remedy these breaches. A fiduciary can seek relief from enforcement actions by filing a Voluntary Fiduciary Correction Program application.

Many fiduciary duty breaches are unintentional. If a fiduciary or plan sponsor discovers a possible fiduciary duty breach, they may be able to correct the problem and also avoid additional penalties. Plan sponsors can file a Voluntary Fiduciary Correction Program (VFCP) application with the Department of Labor to remedy fiduciary breaches.

The purpose of the VFCP is to encourage employers to comply with ERISA regulations by taking action to correct certain violations. It is intended to protect employees and help plan officials understand ERISA protections and regulations. The VFCP is available for certain types of transactions and offers a variety of acceptable methods for correcting fiduciary violations. To apply for relief from enforcement actions, plan sponsors need to:

  • Identify any violations and determine whether they fall within the 19 categories of transactions covered by the VFCP;
  • Follow the process to correct qualifying violations;
  • Calculate any losses or profits and restore the amounts with interest; and
  • File an application with the Employee Benefits Security Administration office, including documentation showing that corrective action was taken.

If you have any questions about what type of transactions are covered by the VFCP, acceptable correction methods, plan restitution, documentation, or have other questions about voluntary corrections, talk to your fiduciary counseling attorneys.

San Diego Fiduciary Counseling Attorneys

At Butterfield Schechter LLP, we offer counseling on fiduciary duties for qualified pension plans. Our attorneys will make sure trustees and fiduciaries stay in compliance with ERISA rules and regulatory changes. Contact our office today with any questions on how we can help you and your company succeed.

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The Recent Revamp of ERISA Disability Claim Regulations

Dodd-Frank and the Fiduciary Rule

Retirement Plans

We help establish a customized plan that meets regulatory requirements as a tax qualified plan. Following implementation, our attorneys can assist clients and their plan administrator with regular reviews and updates to help with regulatory compliance for the plan's operation, and continued effectiveness in meeting the client's specific goals.


We are dedicated to employee ownership. When you come to us for ESOP services, you receive influential legal counsel who stand beside you to help you stay informed, in compliance, and abreast of the latest developments-all to help you realize your plan goals as fully and effectively as possible.


A QDRO is a specially designed court order that is required for the division of retirement benefits in a family law case. Many family law attorneys do not possess the expertise necessary to divide retirement benefits or stock options upon divorce. We have extensive experience in dividing qualified plans, government plans, IRAs and stock options between the employee spouse and non-employee spouse.

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