Pin the tail on the fiduciary

Our clients often ask us to define who in their organizations are fiduciaries to their retirement plans and exactly what it means to be a fiduciary. Many times, our clients are surprised by the answers that they get. You may be as well.

Are you a fiduciary to your company's retirement plan if you sit on the investment committee?

The answer here is almost always yes. The only exception would be someone who attends the investment committee meetings in a note-taking capacity only. Members of investment committees generally have discretion in administering and managing the plan or controlling the plan's assets. If you make plan administrative or management decisions, or provide actionable input, you are probably a fiduciary.

If your boss has directed you to sit on your company's investment committee (even if you don't want to) does that make you a fiduciary? What about your boss - is he/she a fiduciary?

The short answers are yes and yes. Even though you may not know anything about retirement plans, and even if your job has nothing to do with anything financial or employee benefits-oriented, if your boss appoints you to the investment committee, you are a fiduciary to your company's retirement plan. However, so is your boss. Why? Because your boss has the authority to appoint someone to the committee. Your boss may think that appointing you to the investment committee allows him/her to step away from being a fiduciary. Unfortunately (for your boss), that is not the case.

Can't we just hire someone to be a fiduciary to our plans? Then no one at our company will have to be a fiduciary, right?

You can absolutely hire someone to be a co-fiduciary with you on your plans. However, that does not mean that the plan sponsor (you) is no longer a fiduciary. You cannot offload your fiduciary responsibility as a plan sponsor, but you can seat more people in the fiduciary boat with you. Also keep in mind that as the plan sponsor, you have the duty to monitor the fiduciaries you hire.

What happens if I make a mistake as a fiduciary?

You can be held personally liable (insurance protection may be purchased) for fiduciary breaches in areas over which you have decision-making authority.

After reading all of this, I'm resigning today from the investment committee. I'm done being a fiduciary immediately upon my resignation, right?

Nope. Not until you are replaced. You cannot escape your fiduciary responsibility by trying to run and hide! If you resign and don't attend meetings, or if you just decide not to attend any more meetings, you still remain a fiduciary until you are replaced.

Okay, I'm stuck. Now that I understand that I am a fiduciary, what does that mean, exactly?

The Department of Labor says that the primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must diversify the plan's investments to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest.

And the English translation is: The decisions that you're involved in making at investment committee meetings must benefit the participants of the retirement plan only, and not your employer, committee members or someone else. As a fiduciary, you must act prudently (cautiously and with a well-documented line of reasoning) when considering your retirement plan's investments. You must follow the plan document for your retirement plan, which outlines how your plan works. Finally, you need to avoid conflicts of interest, many of which may involve the providers you hire or the investments you select.

Do your responsibilities still seem a bit foggy? The good news is that there is a lot of help out there. There are many qualified attorneys, investment advisers and consultants who can help you better comply (and understand) your fiduciary responsibilities. Don't be afraid to reach out for some help.

Contributing Editor Robert C. Lawton is an Accredited Investment Fiduciary. He leads the Graystone Consulting retirement plan advisory group in Madison, Wisconsin. Graystone Consulting is a business of Morgan Stanley Smith Barney and provides investment advisory services to corporations, not-for-profits, endowments and individuals. He can be reached at robert.lawton@morganstanleygraystone.com or 608-283-2304.