Fiduciary Responsibility

Many employers offer a retirement savings plan, commonly referred to as a 401(k) plan, without being fully aware of their fiduciary responsibilities—and the risks and liability that can accompany these plans. As a plan sponsor and a plan fiduciary, you have certain responsibilities that have been established by the Employee Retirement Income Security Act of 1974 (ERISA),which are monitored by the U. S. Department of Labor (DOL). 

Who Is a Plan Fiduciary?
 Every 401(k) plan must have at least one named fiduciary, who has the responsibility of administering the plan and selecting investment options. For most plans, the plan sponsor serves that role. 

A fiduciary is any person who:

• Is named in the plan document as a fiduciary or is appointed as a fiduciary.
• Exercises discretionary authority or control over plan assets and/or the management of the plan.
• Provides investment advice for compensation with respect to plan assets.

Fiduciary Standards of Conduct
Fiduciaries must abide by certain rules of conduct:

1. Act solely in the interests of plan participants and beneficiaries. 
2. Act with care, skill, prudence, and diligence. 
3. Diversify the investments of the plan. 
4. Administer the plan in accordance with the plan documents and instruments. 
5. Evaluate the reasonableness of fees and charges paid by the plan.
 
Limiting Liability With Section 404(c)
Many 401(k) plans are designed and operated to comply with the requirements of ERISA Section 404(c), although compliance with Section 404(c) is voluntary. This section of ERISA provides limited relief from fiduciary liability for retirement plans in which plan participants exercise independent control over their own plan investments. It basically shifts the responsibility for investment losses from the plan fiduciary to the participant, so long as certain requirements are met by the plan fiduciary. Please consult your legal advisor for more information on those requirements.

However, even if participants direct the investment of their plan assets among the plan’s investment options, a plan sponsor or other plan fiduciary who selects plan investment options still must exercise prudence in selecting the investment options that will be available to participants, and is still liable for that selection.

Five Steps to Deliver on Fiduciary Responsibilities

1. Document your decisions. 
2. Establish an investment policy statement.
3. Select investment options. 
4. Monitor investment options. 
5. Communicate to participants.

For more information about the fiduciary responsibilities of a plan sponsor, click here.