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ML BeneBits

One of the simplest yet most integral parts of meeting your ERISA fiduciary duties is “sticking to the plan.” Section 402(a)(1) of ERISA requires that every employee benefit plan it covers be established and maintained pursuant to a written instrument.

Establishing a written plan document is a nonfiduciary “settlor” activity. This means that all of the decisions that go into designing the plan are not subject to the ERISA standard of care and cannot be challenged for a breach of fiduciary duty.

On the other hand, following the written plan document in the day-to-day management and administration of the plan is a fiduciary duty under Section 404(a)(1)(D) of ERISA to the extent that it is consistent with ERISA. ERISA requires strict compliance, and veering from the plan’s written terms is generally a per se violation of ERISA. Failure to follow the written plan terms is the most obvious breach of fiduciary duty for a court or regulatory agency to spot and enforce. For example, where a fiduciary’s decision may or may not plainly be a breach of prudence under ERISA, a clear violation of the plan’s written terms may otherwise be the court’s or regulatory agency’s path to finding a breach.

As time passes, there may be turnover in those serving as fiduciaries, and/or fiduciaries may begin to form habits in how a plan is managed and administered. Habitual management and administration can be a good thing provided that the plan is being followed. However, where a fiduciary deviates from the plan and then consistently follows the same path, recurring fiduciary breaches may occur for days, weeks, months, or years, if left unchecked. As a result, as part of a fiduciary’s procedural prudence, a self-audit of the written plan document and the management and administration of the plan should be conducted to ensure that the plan is being administered in accordance with its terms.

We suggest the following steps in conducting the self-audit:

  • Determine the “current” written plan documents. Written plan documents can include a written plan, trust agreement, summary plan description, and amendments and updates thereto. As these documents are updated and amended over time (either by choice or legal requirement), several versions may begin to accumulate. While it is important to maintain historical versions of plan documents for ERISA purposes, in order to stick to the plan you need to know what the plan says today. In connection with a periodic self-audit, we recommend updating and restating plan documents to form a unified set of plan documents for the plan fiduciary to follow with confidence.
  • Once the current written plan documents are identified, the plan fiduciary should compare the written terms of the plan documents with the plan’s operations. Often, as time passes, plan fiduciaries may think that their “normal” process is consistent with the plan. A self-audit analyzing the plan fiduciary’s, or a recordkeeper’s or third-party administrator’s, operation of the plan as compared to the actual terms of the plan document can help you spot inconsistencies before a plaintiffs’ firm or regulatory agency can. Often these inconsistencies can be cured through self-correction depending on the size of the error and the time period in which it occurred.

How We Can Help

Morgan Lewis frequently assists plan sponsors with self-audits of qualified retirement plans (including pension and 401(k) plans), nonqualified plans, and health and welfare plans. This type of audit involves a review of a plan’s compliance with its written governing document as well as with applicable laws, including ERISA, the Internal Revenue Code, healthcare laws and related regulations, and administrative interpretations and pronouncements.

Our assistance with self-audits is informed by our experience representing clients who have been or are being audited by regulators such as the IRS or DOL. Our checklists and audit documentation are prepared from the checklists provided to our clients by the various agencies, and we focus on audit issues often raised during agency audits.

In addition, where we assist with self-audits, we do so in our capacity as legal counsel to the plan sponsor, creating credible arguments that the communications and findings of the audit are protected by the attorney-client privilege.

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