Fiduciary Responsibilities – What Does This Mean for Plan Sponsors?

May 06, 2014

Derived from the Latin term for “faith” or “trust”, fiduciary refers to a relationship in which one person has a responsibility of care for the assets or rights of another person. When it comes to benefit plans, the employer is the fiduciary such that they have a duty of loyalty, a duty to act prudently and reasonably in the selection and monitoring of their service providers, and a duty to provide information to the employees. When an employer decides to establish a CAP (capital accumulation plan), they would need to assume certain responsibilities in their role as a CAP sponsor and ensure that the CAP is administered with the CAP guidelines. Some of the responsibilities include:

  • Setting up the plan
  • Providing investment information and decision-making tools to CAP members
  • Introducing the plan to members
  • Providing on-going communication to members
  • Maintaining the plan
  • Ensuring the termination of the plan or the membership of an individual within the plan is done in accordance with the terms of the CAP

The employer, as a CAP sponsor, should ensure that the decisions about establishing and maintaining the plan are well documented and that the documents are retained. Good governance exists when the administrator (CAP sponsor) is held accountable for administering the plan in accordance with the plan documents, CAP guidelines and industry best practices. Those who implement good governance generally avoid liability, lead to better performance, operate the plan more efficiently and have higher satisfaction among plan members.

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