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Santo Gold

Plan Administrator liability

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The controller for a company that sponsors a 403(b) asked whether he could be personally liable for errors or problems that might occur with the plan. He said that at a recent seminar, the speaker suggested this is the case. I know that if he were to take any criminal action he could be personal liable. But the Speaker mentioned that if, for example, contributions are late to be deposited, he could be personally liable. I do not believe that this is correct. Any thoughts on this would be appreciated.

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If it is an ERISA-governed plan, he could be liable only if a loss to the plan occurred due to some action or inaction by him as a plan fiduciary that constituted a breach of his fiduciary duty under ERISA, such as a prohibited transaction. If it is not an ERISA-governed plan, seems unlikely but that is a question under the applicable State's laws.

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With respect to deposit of elective deferrals, the Department of labor view is the the plan administrator, or some other fiduciary, is responsible for receipt because the amounts become plan assets at some time and the fiduciary is responsible for the management of plan assets. To use what jpod posted, the fiduciary has a duty to make sure that the plan receives its assets. That does not mean liability for a late deposit unless the fiduciary breaches its duty either by not paying attention or by failing to take appropriate action if the deposits are not received timely (including an appropriate correction if the deposit is late).

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Well, as an example - IRS penalties for failure to timely file 5500 forms. Penalties may be imposed upon either the Plan Administrator or the Employer. See Treasury Regulation 301.6652-3(a)(3). And of course the DOL imposes penalties for late filing on the Plan Administrator. But I don't know if you are talking about an ERISA 403(b) or not.

(3) Annual return of funded plan of deferred compensation. Under section 6652(f) the amount described in this subparagraph is imposed in each case in which there is a failure to file the annual return described in section 6058(a) on behalf of a plan described in § 301.6058-1(a) at the time and in the manner prescribed therefor (determined with regard to any extension of time for filing). The employer maintaining the plan is liable for the amount imposed with respect to a failure to so file the annual return in each case in which the employer must file the return under § 301.6058-1(a). The plan administrator (within the meaning of section 414(g)) is liable for the amount imposed in each case in which the plan administrator must file the return under § 301.6058-1(a). In the case of an individual retirement account or annuity described in section 408, the individual described in § 301.6058-1(d)(2) who must file the annual return under § 301.6058-1(d) is liable for the amount imposed with respect to a failure to so file the annual return. The amount imposed is $10 for each day during which the failure to file the annual return on behalf of a plan for a year continues. However, the total amount imposed with respect to a failure to file on behalf of a plan for any year shall not exceed $5,000.

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The Plan Administrator can be liable for plan violations. But is that the same thing as saying the individual is personally liable? In this case, the employer is the plan administrator; no indivdual is named a the plan administrator. There is an individual in the company that handles the deposit of 403(b) contributions to the plan. The same individual signs and files form 5500. If there is a violation that results in a fine or penalty, it is the company (which is the plan administrator) not the individual carrying out the duties of plan administrator, that is liable, is that correct?

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I think the answer to this one is simple - is the individual considered a fiduciary, based on function (including the hiring and firing of other fiduciaries). If so, then yes, there is personal liability for "plan errors" that arise from a fiduciary failure. Equally as simply is that the individual is *not* a fiduciary and therefore personally liable simply by virtue of the the title "Controller."

The only way to tell is to "inventory" the fiduciary functions and figure out who is performing them - which is why the DOL has for a decade or so been pushing the concept of fiduciary education on plan sponsors and their employees.

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This thread illustrates why it is not a good idea to have the corporate plan sponsor be the plan administrator. The Department of Labor can assert that every individual director and executive officer is a fiduciary personally based on the formal identification of the plan sponsor plan administrator, and it has done so. In the end, the argument that there is a very clear and well defined (by practice) limited number of persons who are the functional fiduciaries will probably control the personal liability questions, but it will be rather uncomfortable for those poor formal fiduciaries to suffer through the process with the liability cloud over their heads and the outcome is uncertain.

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