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What are the Fiduciary's Responsibilities

The fiduciary of a retirement plan is legally responsible for the plan’s financial and administrative decisions.  Any mistakes, errors, or wrongdoing that occurs in the operation of the plan is the fiduciary’s responsibility.  If the plan sponsor does not have the funds to fix the fiduciary breach the personal assets of the fiduciary are at risk.  Actions of a fiduciary must be consistent with the Prudent Man Rule as defined in Title 29 of the U.S. Code §1104

“… a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of: providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan; with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III.”

Responsibilities of a 401(k) fiduciary would include, among others:

•    Choosing prudent investments with reasonable fees

•    Meet diversification requirements by offering a range of investment options/asset classes

•    Review and monitor the investments that have been chosen to assess performance and cost as compared to other similar investments/benchmarks

•    Insure compliance with all plan design features and IRS rules, e.g. using the correct definition of compensation, timely remittance of employee deferrals

•    Maintain a current plan document in accordance with all legislation as required

•    Confirming that all participant notices are timely communicated, e.g. participant statements, 401(k) Safe Harbor notice

•    Correcting any errors in compliance, e.g. failure of non-discrimination testing for a traditional 401(k) plan

•    Selecting and monitoring service providers, e.g. the investment advisor or recordkeepe

Many of these responsibilities can be offloaded to a professional ERISA 3(16) fiduciary (See What is an ERISA Fiduciary, emailed on April 25, 2019) although that does not relieve the “plan fiduciary” (typically the plan sponsor or trustee) from liability.  It is still the plan fiduciary that is responsible for choosing the professional fiduciary which is also a fiduciary responsibility (See above).  Fiduciary compliance is a daunting task that should not be taken lightly.  Consider the over 100 claims in the courts due to perceived fiduciary breach by plan sponsors/fiduciaries of 401(k) and 403(b) plans.  Many of these cases were settled for seven and eight figure amounts while many are still in the courts.  Some have been dismissed, mainly due to poorly stated and supported claims, while many more continue to proceed in the court system.  To avoid being one of those plan sponsors that pay large sums to settle the case or ongoing legal fees to defend against the claims make sure you know your responsibilities, consider a fiduciary compliance assessment periodically done by a qualified advisor.