PLANSPONSOR - January - February 2024 - 38

FIDUCIARY FORUM
2 Distinct Roles for
When Sponsors Act
Is the plan sponsor serving as a fiduciary or a settlor? It needs to know
W
hat does it mean to be a settlor and why does it matter?
One of the most basic concepts presented during
a plan sponsor's fiduciary training is that of settlor vs.
fiduciary functions. The concept is important because plan sponsors
need to distinguish which they need to serve as-a fiduciary
or a settlor-when they perform a duty.
Yet, training will gloss over the concept of being a settlor
because, after all, this is " fiduciary " training. Regardless, it's
important for plan sponsors to also understand
their settlor role. When acting in a
settlor capacity, the sponsor is not a fiduciary
as defined under the Employee Retirement
Income Security Act. This means it does
not have to act " solely in the interest of plan
participants and beneficiaries " as it does
when acting in a fiduciary capacity. Still, for
those sponsors that play a dual role, distinguishing
between the two can be a very fine
line. That line can become especially blurred
as plan committees look to creating their
agendas for the coming year.
To help plan sponsors make the
adviser may be present and provide a review of the plan's investments
and their performance. There might be debate about
which investments should be removed and/or which may be
added. This discussion will require a change of hats, because
monitoring the plan's investments is a fiduciary function.
These hats are not just worn with respect to retirement
What hat
must you
be wearing
to make a
particular
distinction, we like to use imaginary hats.
What hat must you be wearing to make a
particular decision about the plan? There are two choices: 1) a
fiduciary hat, or 2) a settlor hat. It's important to note that one
can never wear both hats at the same time. The settlor hat is typically
worn for decisions regarding plan design-these decisions
may be made in the best interest of the company.
For example, as a plan sponsor enters the new year, there
plans, but also must be for decisions about the company ERISA
health and welfare plans. When the plan sponsor decides to
offer a group health plan, this requires
myriad fiduciary and settlor decisions in
the process. For instance, the decisions
to adopt a benefit plan, to determine the
criteria for who is eligible, to self-insure
and to offer a fully insured plan to participants
are settlor decisions. But discretionary
decisions on the payment of benefit
claims are fiduciary decisions.
Lastly, it is especially important to
decision about
the plan?
distinguish between settlor and fiduciary
decisions if a plan sponsor pays plan
expenses from the plan. The Department
of Labor has issued guidance on this issue,
including DOL Advisory Opinion 200101-A.
Settlor expenses may never be paid by
could be a focus on participation rates, what optional plan design
changes might be appropriate, and whatever other changes it has
foreseen the plan needing. For example, some design changes,
including changes to the employer's contribution in the plan (for
non-safe harbor plans) are typically made while wearing a settlor
hat. This may be confusing because if the decision is to decrease
the employer's contribution to the plan, that would not benefit
participants. But because it is a plan design determination, it is
a settlor decision. The decisionmakers are acting in their business/corporate
capacity and are free to make choices that serve
the company, even to participants' detriment.
At
the same meeting, however, the plan's
investment
the plan, but, once a provision is integrated into the terms of the
plan , the plan may pay for implementation. For example, costs
associated with analyzing whether to adopt a plan amendment
and preparation of that amendment are settlor costs that must
be paid by the plan sponsor. Once the plan is amended, however,
notifying participants and applying the new plan provision are
plan expenses that the plan may pay.
Changing hats back and forth for settlor vs. fiduciary decisions
can be cumbersome and confusing. One way to address
this is to prepare a clear agenda for committee meetings. The
agenda can segregate, as much as possible, the topics according
to the hat that is needed so individuals wear the appropriate hat
for the decision.
Summer Conley is a partner in the Los Angeles office of
Faegre Drinker Biddle & Reath LLP. Michael Rosenbaum is
a partner in the firm's Chicago office. Heather Bader, also
a partner in Los Angeles, contributed to this column.
38 PLANSPONSOR.COM January - February 2024 Art by Joseph Ciardiello
http://www.PLANSPONSOR.COM
PLANSPONSOR - January - February 2024

Table of Contents for the Digital Edition of PLANSPONSOR - January - February 2024
