RETIREMENT & OTHER CONCEPTS · 5 MIN READ
ERISA Fiduciary Duties, Disclosures, and PBGC Protection
ERISA's fiduciary rules (Title I, Part 4) require anyone exercising discretion over plan assets or administration to act solely in the interest of participants — with duties of prudence, loyalty, diversification, and adherence to plan documents. A fiduciary who breaches these duties faces personal liability. The fiduciary rules cover private-sector pension and welfare plans, but ERISA excludes governmental plans, church plans (unless they elect coverage), plans maintained solely for workers' compensation or disability law compliance, and certain foreign and excess-benefit plans. Fully insured welfare plans remain covered — using insurance as the funding vehicle does not remove ERISA. Participant-directed DC plans get relief through the Section 404(c) safe harbor: fiduciaries are not liable for losses caused by a participant's own investment choices if the plan offers at least three diversified investment alternatives with materially different risk and return characteristics, allows investment instructions at least quarterly, and delivers adequate information. When participants fail to choose, defaulted contributions can go into a qualified default investment alternative (QDIA) — a target-date fund calibrated to the individual's age, a balanced fund calibrated to the plan's participants as a whole, or a managed account. Plans must also file the Form 5500 annual report, due the last day of the seventh month after the plan year ends (July 31 for calendar-year plans), with an extension available to October 15. When a PBGC-covered single-employer DB plan fails, the PBGC pays guaranteed benefits up to an indexed cap (about $7,107 per month at age 65 for 2024 terminations). Plan assets are allocated in six priority categories, and employee money comes first: voluntary employee contributions (PC1), then mandatory employee contributions (PC2), then benefits in pay status for three-plus years (PC3), then other guaranteed benefits, other vested benefits, and all remaining benefits.
Key rules
ERISA fiduciary duties do not reach governmental or church plans.
ERISA excludes governmental plans, church plans (absent an election), workers' comp-only arrangements, foreign plans for nonresident aliens, and excess-benefit plans; state law and the tax code govern instead.
Why the exam cares: The exam asks which plan is NOT subject to fiduciary duties — the governmental plan is the recurring correct answer.
The 404(c) safe harbor needs 3 diversified options and at least quarterly control.
Participants must get materially different risk/return choices, the ability to give instructions at least quarterly, and enough information to decide — then fiduciaries stop being liable for the participant's own choices.
Why the exam cares: The 'at least three alternatives' and 'quarterly' specifics are the tested details.
A TDF allocates by the individual's age; a balanced QDIA fits the plan as a whole.
Target-date funds shift each participant's mix by age or retirement date; a balanced fund uses one static mix for every defaulted participant; managed accounts individualize through a manager.
Why the exam cares: The calibration difference between the QDIA categories is a verbatim exam question.
Form 5500 is due the last day of the 7th month after the plan year ends.
That is July 31 for a calendar-year plan, with an extension to October 15; late filings draw daily DOL and IRS penalties.
Why the exam cares: The July 31 deadline is quick-recall material that shows up almost every exam cycle.
At DB plan termination, voluntary employee contributions are paid FIRST (PC1).
The six priority categories run from voluntary employee contributions and mandatory employee contributions down through in-pay-status benefits, guaranteed benefits, other vested benefits, and everything else.
Why the exam cares: The rationale — employees recover their own money before employer promises — helps you pick PC1 without memorizing all six.
Numbers to memorize
- 3 — minimum diversified investment alternatives for the 404(c) fiduciary safe harbor
- Quarterly — minimum frequency for participant investment instructions under 404(c)
- July 31 — Form 5500 deadline for calendar-year plans (last day of 7th month; extension to October 15)
- About $7,107/month — PBGC maximum guaranteed benefit at age 65 for 2024 plan terminations
- 6 — priority categories for allocating assets when a covered DB plan terminates
Common traps
- Assuming a fully insured welfare plan escapes ERISA fiduciary rules — insurance funding does not remove ERISA coverage; governmental and church plans are the true exclusions.
- Confusing the TDF and balanced-fund QDIA tests — the TDF must track the individual participant's age or date; the balanced fund tracks the plan's population as a whole.
- Thinking PBGC guarantees the full promised pension — the guarantee is capped at an indexed monthly maximum and reduced for early commencement.
- Placing employer-funded benefits ahead of employee contributions at plan termination — employee money (voluntary, then mandatory contributions) is paid before employer-promised benefits.
Anchor Part 4 questions on one principle — participants' own money and own choices get protected first — and the 404(c), QDIA, and termination-priority answers fall into place.
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