ERISA 403b Fiduciary Liability

[sloble@crowleyfleck.com]

Company has an ERISA 403b that is administered by NY Life. NY Life enters annuity contracts with individuals and administered all aspects of the plan, approves loans, etc. However, Company handles funds to the extent they pass from participant compensation to NY Life.

Company is concerned about fiduciary liability and bonding. How much success have people had with getting indemnification provisions in contracts with insurers for fiduciary liability and are they enforceable to help absolve company liability?For example, indemnification of Company in loan contracts between participant and insurer?

Any other thoughts?

[GBurns]

This is not an answer to your question, but your post raises my curiousity.

What makes this an ERISA plan?

Whatever it is, does that not make the employer a fiduciary anyhow?

Who does the Plan Document say are the fiduciaries and Plan Administrator?

Like most PDs this PD probably states that it is the employer who is the Plan Adminstrator and a fiduciary.

Quite often in 403(b) plans there is a Hold Harmless Agreement which some employer feel will relieve them of the fiduciary liability, but that is questionable.

[sloble@crowleyfleck.com]

I am interested in your reference to the hold-harmless agreement--what have you heard about those?

Its ERISA because of employer contributions. There is no question the employer is a fiduciary, the employer is just looking for ways to alleviate liability for acts and ommisions of the insurer because the insurer is the one essentially running the plan.

[mbozek]

Employers obtain hold harmless agreements where the vendor performs calculations such as maximum salary reduction for employees who can defer an extra 3k for 5 years, ACP testing and maximum loan amounts. Vendor will indemnify employer for any liability resulting from miscalculation which causes a failure to withhold taxes. It is not a fiduciary issue per se because it is a tax liability of the employer, not the plan. The liability will exist in a non ERISA plan which provides only for salary reduction. Vendors will not indemnify employer for operational failures, e.g,, employer fails to include eligible employee in plan. Sucess in obtaining one depends on insurers willingness to indemnify client as a condition to get business. Some states require indemnification by a 403(b) provider to a public plan.

Check the DOL regs on bonding. I dont believe bonding is required under a plan where the employer remits contributions to an insurance company.