For CPAs and accounting professionals, employee benefit plans often sit at the intersection of tax compliance, audits, payroll, and advisory services. While retirement plans may not be the primary focus of a CPA’s work, they frequently surface during client reviews, business transitions, or regulatory filings.
The Employee Retirement Income Security Act of 1974 (ERISA) established strict rules governing the management of private-sector retirement and health plans. For CPAs, understanding ERISA is critical not only to help clients stay compliant but also to recognize situations in which fiduciary responsibility (and potential personal liability) may arise.
Whether advising business owners, preparing plan-related filings, or serving in an oversight role, CPAs play a key part in identifying ERISA risks and helping clients protect both plan assets and the professionals who support them.
What is the Employee Retirement Income Security Act?
The Employee Retirement Income Security Act is a federal law enforced by the U.S. Department of Labor that governs most voluntarily established retirement and health plans in private industry. According to the Department of Labor, ERISA was created to ensure that employee benefit plan funds are appropriately managed and protected so that promised benefits are available when participants need them. The law applies to many standard retirement plans, including defined benefit pensions and defined contribution plans such as 401(k) programs.
ERISA does not require employers to offer a retirement plan. However, once a plan is established, the law imposes strict standards for participation, vesting, benefit accrual, and funding. ERISA also mandates that participants receive clear plan information, including a Summary Plan Description that explains how the plan works, who is eligible, and how benefits are earned. Governmental plans, church plans, and certain foreign or excess benefit plans are generally excluded from ERISA coverage.
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Fiduciary responsibilities under ERISA
Fiduciaries play a central role in ensuring compliance with the Employee Retirement Income Security Act. A fiduciary is anyone who exercises discretionary authority over plan management, plan assets, or investment decisions. This may include plan administrators, trustees, committee members, or individuals providing investment advice.
Under ERISA, fiduciaries must act solely in the best interests of plan participants and beneficiaries. They are required to carry out their duties with care, skill, and diligence, to follow plan documents, to diversify investments to reduce risk, and to pay only reasonable plan expenses. Fiduciaries must also avoid conflicts of interest and cannot use plan assets for personal gain. When these standards are not met, fiduciaries may be held personally liable for losses to the plan, according to guidance from the Department of Labor.
ERISA considerations specifically for CPAs and accounting firms
While CPAs may not view themselves as ERISA fiduciaries, certain services can create fiduciary exposure under federal law. A fiduciary is defined by function, not title, meaning that responsibility can arise from actions taken in connection with a retirement or benefit plan.
CPAs may be considered fiduciaries, or face related exposure, when they:
- Provide advice that influences retirement plan investment decisions
- Exercise discretion over plan administration or plan assets
- Serve on a retirement plan committee or act as a plan trustee
- Identify and correct operational failures during audits or reviews
- Prepare or assist with Form 5500 filings and related disclosures
- Become involved in planning decisions during mergers, acquisitions, or succession planning
In addition, ERISA issues are often discovered during routine accounting work, such as payroll reviews, compliance testing, or financial statement audits. Late employee contribution deposits, failure to follow plan documents, or inadequate oversight of service providers can quickly escalate into fiduciary concerns.
For CPAs, understanding where professional services end and fiduciary responsibility may begin is essential. Clear documentation, defined scopes of engagement, and appropriate risk management strategies can help reduce exposure while continuing to provide clients with valuable guidance.
Common risks fiduciaries face
Even well-intentioned fiduciaries can face significant exposure. Administrative errors, failure to follow plan documents, delays in depositing employee contributions, or inadequate oversight of service providers can all result in alleged breaches of fiduciary duty. Participants also have the right under ERISA to sue for benefits or fiduciary misconduct after exhausting the plan’s internal claims and appeals process. These risks make it essential for fiduciaries to understand their obligations and maintain strong governance practices.
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What is a fidelity bond?
ERISA requires most retirement plans to be protected by a fidelity bond. A fidelity bond is not insurance for fiduciaries themselves. Instead, it protects the plan against losses caused by fraud or dishonesty, such as theft or embezzlement, by individuals who handle plan funds. The Department of Labor explains that the bond must cover at least 10 percent of plan assets, subject to minimum and maximum limits, and must be issued by an approved surety.
While a fidelity bond is mandatory for many plans, it does not cover breaches of fiduciary duty, errors in plan administration, or allegations of mismanagement. This distinction is often misunderstood and can leave fiduciaries exposed to significant financial risk.
Why ERISA compliance matters
The Employee Retirement Income Security Act establishes a framework to protect plan participants, but it also creates complex responsibilities for those who manage employee benefit plans. Enforcement by the Department of Labor can include investigations, corrective actions, and civil penalties. In addition, fiduciaries may face costly litigation if participants allege mismanagement or a failure to comply with ERISA requirements.
Staying compliant requires ongoing attention to plan operations, documentation, disclosures, and service provider oversight. Many organizations also rely on professional advisors to help interpret regulatory requirements and reduce exposure.
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Helping CPAs protect themselves while advising clients
CPAs are often the first professionals clients turn to when retirement plan issues surface. While ERISA establishes essential protections for plan participants, it does not shield fiduciaries (including advisors) from personal liability.
Fiduciary Liability Insurance can help cover defense costs, settlements, and judgments related to alleged breaches of fiduciary duty involving employee benefit plans. For accounting firms and their clients, it plays an important role in a comprehensive risk management strategy.
Contact McGowan Professional to learn how Fiduciary Liability Insurance can help CPAs and the businesses they advise manage ERISA-related exposure with confidence.