By Jeff Chang
Whenever you engage a new recordkeeper for your governmental 457(b) or 401(a) plan, the plan sponsor will be asked to complete, sign and return an authorized plan representatives form (APRF). The APRF designates the so-called “contact persons” and the plan sponsor from whom the recordkeeper may receive directions and instructions. Most human resource directors fill-in the names, titles and emails of two to four members of their human resources staff and return the form to the recordkeeper without much thought. Completing the form in this manner may not be a good idea for a number of reasons:
- Most APRFs give the “authorized plan representatives” (APRs) broad authority with respect to the administration of the plan, including: changing plan investment options; executing plan amendments; approving participant requests for withdrawals, loans and distributions, authorizing payment of fees out of plan assets; correcting errors in plan administration; and generally providing any other fiduciary or plan sponsor direction to the recordkeeper. In many cases, this document appears, at least from the perspective of the recordkeeper, to give APRs most of the powers of the plan administrator. Remember, ERISA and trust law treat persons who “act like fiduciaries” as fiduciaries.
- The next question is whether this “delegation” of administrative and fiduciary responsibility was intentional by the plan sponsor and the named plan fiduciary. We think many plan sponsors may not realize what they are doing when they complete these forms. These forms can and do give the APRs, who may be mid- or lower-level staff members, many of the duties and responsibilities that the sponsor thinks it has reserved to the named fiduciary (i.e., the city manager, the finance director, or the human resource director).
- Once the plan sponsor understands how the APRF operates, it needs to consider whether it wants to expand the number of persons with this level of authority with respect to the plan, or not. If, as a practical matter, the named APRs need to have full plan administrative authority, they should be: informed that they are plan fiduciaries; advised that they are subject to special duties and responsibilities under state law and the plan document; and trained on how to properly discharge their fiduciary duties. Alternatively, the APRF can be restricted, or redone, to require the approval of most, if not all, fiduciary acts by the actual plan administrator.
- Regardless of what the plan sponsor thinks, a careful reading of the administrative services agreement governing the recordkeeper’s duties and responsibilities will reveal that it can “rely” on and follow directions from APRs. This is intended to protect the recordkeeper from following the instructions of plan sponsor staff who are not designated fiduciaries, but who have been listed as APRs.
Plan administration can be complicated, and some mistakes in the administration of a plan may be difficult to correct. When it comes to making discretionary or judgment calls regarding the operation of your 457(b) plan or 401(a) plan, it makes sense for everyone to understand their roles, duties, and any limitations they may be subject to.
Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at firstname.lastname@example.org or (916) 329-3685.