Business Law

Sam is operating on thin ground with his offering of a pension plan for his 12 employees. Technically he is correct when he says he does not have to offer a pension plan to his employees, but, by having done so, he now assumes fiduciary responsibility for that plan.

"The duty to act prudently is one of a fiduciary's responsibilities under ERISA. It requires expertise in a variety of areas, such as investments." (U.S. 2006)

Because Sam does not have the expertise required to manage a pension plan, as evidenced by the fact that he is prepared to invest 50% of the plan's assets into company stock, he could find himself in hot water if, and when, the company experiences difficult financial times or even has to declare bankruptcy. It is rather strange that a company with only 12 employees has stock, which would probably mean that the stock is not publicly traded, which could lead to even more problems.

If I were Sam, I would probably offer the employees a 401(k) offered by a third party provider with a number of funds that can be selected by each individual participating in the plan. There would still be a liability assumed as a fiduciary, but it would be in regards to picking the correct third party, not the responsibility of personally overseeing a plan's assets. The liability therefore is not nearly as extensive as it could be. To further alleviate his responsibility he could document his decision in regards to choosing a third-party provider, including clearly stated goals and objectives in providing the plan to his employees. He can also offer a number of different choices in regards to the investments in the plan, and if I were Sam I would keep the company stock entirely out of the picture.

Works Cited

U.S. Department of Labor, (2006) Meeting Your Fiduciary Responsibilities, http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html, Accessed October 30, 2006