Plan sponsors are typically aware that operational errors threaten a retirement plan’s qualified status under the Internal Revenue Code if they remain uncorrected.  What may come as a surprise, however, is that operational errors can also result in fiduciary liability under ERISA for the fiduciaries responsible for the errors.  Failing to administer the plan in accordance with its terms can in and of itself amount to a breach of fiduciary duty, and administrative errors almost always involve a failure to follow the plan’s terms.

That said, a fiduciary can correct its breach by voluntarily correcting an error when it becomes aware of the administrative or operational issue.  Courts routinely find that when a plan sponsor corrects an operational error by making participants whole, even in the face of a fiduciary breach, the participants have no remedy to pursue as they have already been put in the position they would have been in, had the error not occurred.

Fiduciaries can limit their exposure by demonstrating that they have carried out their fiduciary responsibilities properly and documenting the processes used.  Plan fiduciaries should regularly meet as a committee, hold special meetings to discuss operational errors, discuss corrective actions, implement educational campaigns, hire outside advisors to assist as appropriate, and implement and follow governing documents such as a fiduciary charter and investment policy statement to ensure that it follows a prudent practice with respect to plan governance.  All of these things indicate that a plan fiduciary committee is fulfilling its fiduciary obligations to plan participants and will insulate the fiduciary committee from a breach claim.