ERISA Compliance for Pension Fund Managers
The Employee Retirement Income Security Act of 1974 (ERISA) is the federal law that governs private-sector pension plans. For plan fiduciaries, ERISA compliance is not optional — violations can result in personal liability, excise taxes, and plan disqualification.
Who Is a Fiduciary Under ERISA?
ERISA defines a fiduciary broadly: anyone who exercises discretionary authority or control over plan management or assets, provides investment advice for compensation, or has discretionary authority over plan administration. This includes plan trustees, investment managers, and in some cases, investment consultants.
Being a fiduciary is not a title — it's a functional test. A corporate officer who makes investment decisions for the pension plan is a fiduciary even if their job title doesn't mention it. ERISA fiduciaries are personally liable for breaches of their duties.
The Four Core Fiduciary Duties
Duty of Loyalty
Act solely in the interest of plan participants and beneficiaries — not the employer, union, or plan administrator.
Duty of Prudence
Invest with the care, skill, prudence, and diligence of a knowledgeable investor familiar with such matters.
Diversification
Diversify plan investments to minimize the risk of large losses, unless it is clearly prudent not to do so.
Plan Document Compliance
Follow the plan documents unless they violate ERISA. Investment policy statements must be followed.
The Prudent Expert Standard
ERISA's prudence standard is not the "prudent person" standard of common law — it's the "prudent expert" standard. Fiduciaries are held to the standard of a knowledgeable investor familiar with pension fund management. This means fiduciaries who lack investment expertise must hire qualified advisers rather than making uninformed decisions themselves.
The prudent expert standard also applies to the process of investing, not just the outcome. A fiduciary who follows a sound process — conducting due diligence, diversifying appropriately, monitoring managers — is protected even if investments underperform. A fiduciary who achieves good returns through a flawed process is still liable.
Prohibited Transactions
ERISA prohibits certain transactions between the plan and "parties in interest" — the employer, plan service providers, and their affiliates. Prohibited transactions include: selling or leasing property between the plan and a party in interest; lending money to a party in interest; and paying excessive compensation to service providers.
The DOL has issued class exemptions that permit certain transactions that would otherwise be prohibited, provided specific conditions are met. Plan fiduciaries must understand which transactions require exemptions and ensure compliance before proceeding.
Reporting and Disclosure Requirements
ERISA requires annual filing of Form 5500 with the DOL and IRS, which discloses plan assets, liabilities, funding status, and service provider fees. Plans with 100 or more participants must attach audited financial statements. Summary Plan Descriptions (SPDs) must be provided to participants and updated when material changes occur.