Plan Sponsor Responsibilities Under ERISA

When you establish a 401(k) plan for your employees, you assume significant legal obligations under ERISA. These responsibilities don't end at plan setup — they are ongoing and require active, documented oversight throughout the life of the plan.

1. Selecting and Monitoring Service Providers

Your recordkeeper, investment advisor, third-party administrator (TPA), and auditor are all "service providers" under ERISA Section 408(b)(2). Before selecting any service provider, you are required to:

• Conduct a prudent search process (typically an RFP or competitive review)
• Understand and evaluate the services being provided
• Ensure the compensation is reasonable relative to those services
• Document your selection process

Monitoring is equally important. You should review service provider performance and fees at least annually, and conduct a formal RFP or market study every three to five years.

2. Understanding and Managing Conflicts of Interest

ERISA prohibits certain transactions between the plan and "parties in interest" — a term that includes service providers, the employer, and their affiliates. Prohibited transactions can occur even without bad intent, which is why understanding the rules matters.

3. Maintaining a Fiduciary File

One of the most practical steps you can take is maintaining a fiduciary file — a documented record of every major decision made on behalf of the plan. This should include:

• Investment policy statement
• Minutes from investment committee or plan review meetings
• Fee benchmarking reports
• 408(b)(2) disclosure documents received from service providers
• Copies of the plan document and amendments
• Annual Form 5500 filings

4. Reviewing the Investment Menu

Plan fiduciaries are responsible for offering a prudent range of investment options to participants. This means regularly reviewing funds for performance, expense ratios, and continued appropriateness — and removing options that no longer meet the plan's investment policy criteria.

5. Fee Benchmarking

The most actionable step most plan sponsors can take is conducting regular fee benchmarking. This means comparing the fees you pay against market rates for plans of your size. The DOL has made clear that "reasonable fees" requires more than a gut feeling — it requires documented comparison.

FEEDUCIARY exists to make this step accessible. A benchmark report showing your fees are within market range is one of the strongest pieces of fiduciary documentation you can add to your file.

6. ERISA Fidelity Bond

ERISA requires that every plan fiduciary who handles plan funds be covered by a fidelity bond — insurance that protects against losses from fraud or dishonesty. The bond must cover at least 10% of plan assets, with a minimum of $1,000 and maximum of $500,000 (or $1,000,000 if the plan holds employer securities).