Commentary: Recently the Department of Labor shared a proposed set of regulations about retirement plan fiduciary responsibility. As a result, many 401(k) plan sponsors are asking questions about their fiduciary responsibilities. Following are the most frequent questions that I hear:
1. Am I a fiduciary?
A 401(k) plan sponsor is always a fiduciary and can never climb out of the fiduciary boat. As a general rule, anyone employed by a plan sponsor who acts in a fiduciary role with respect to the retirement plan is a plan fiduciary. Acting in a fiduciary role generally means that an individual may exercise discretion with regard to the plan. As a result, typically every member of the investment committee is a fiduciary, as is anyone who exercises discretion in relation to your 401(k) plan.
2. My boss appointed me to our plan's investment committee even though I don't have time to serve in this role. Am I a fiduciary?
Not only are you a fiduciary, but so is your boss. Anyone who has the ability to appoint a fiduciary is a fiduciary. Although you may not have time to serve, that does not affect your status as a fiduciary. Oh, and not attending investment Committee meetings will not absolve you of your fiduciary responsibility either. Nor will resigning from the investment committee without finding a replacement.
3. Is our investment adviser a fiduciary? How would I know?
Currently, it is very unusual for an investment adviser not to be a fiduciary to the 401(k) plans he/she works with. However, it is possible. Look in the contract you signed with your adviser. If he/she is a fiduciary there will be language stating that he/she is an ERISA Section 3(38) or 3(21) fiduciary. If you have difficulty finding that sort of language, call your adviser and ask. If your adviser is not a fiduciary, you should seriously think about hiring a different adviser.
4. I know my investment adviser is a fiduciary. That means that I don't have to be one, right?
As mentioned previously, a plan sponsor can never offload its fiduciary responsibility. However, plan sponsors can welcome more fiduciaries into the fiduciary boat. This is a good thing since the more fiduciaries in the boat, the more parties are available to absorb financial responsibility in the event of a breach.
5. Our plan's recordkeeper has to be a fiduciary, right? Our plan attorney should be one as well, since he is always telling us what to do with the plan.
Neither your plan's recordkeeper or attorney are likely to be fiduciaries since they do not have discretionary authority. Your plan's custodian, accountant, payroll vendor and any consultants are probably not fiduciaries either.
6. If an investment fund that the investment committee chose to offer loses money, are the fiduciaries liable for the loss?
Provided everyone on the investment committee acted prudently when choosing and monitoring the fund, the answer would be no. Fiduciaries are not responsible for insuring investment option performance.
7. Some of the prior fiduciaries to our 401(k) plan don't seem to have done a good job choosing investment funds. Could we be liable, even though we weren't involved in selecting those funds?
Possibly. If proper due diligence was not exercised in choosing an investment option by prior fiduciaries, existing fiduciaries are not exempt from responsibility/liability if they decide to continue to offer the fund.
8. We just always do what our investment adviser tells us to do. As a result, there is no way we could be liable for any fiduciary breach, right?
Wrong. Although you are not expected to have the knowledge of an expert, failing to exercise proper due diligence when reviewing a recommendation made by an expert may lead to liability, in the event of a breach.
9. Is there any way to manage fiduciary risk and the associated liability?
Yes, many. Your employer should have fiduciary liability insurance and your plan should also have an ERISA fidelity bond. You can contract for co-fiduciary services and elect to comply with a number of the safe harbors the regulations offer (e.g., Section 404(c) compliance).
Have other questions regarding fiduciary liability? If so, let me know and I will do my best to share an answer with you.
Robert C. Lawton, AIF, CRPS, is president of Lawton Retirement Plan Consultants, LLC, an RIA firm helping plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at firstname.lastname@example.org or 414.828.4015.
Robert C. Lawton, AIF, CRPS is President of Lawton Retirement Plan Consultants, LLC, an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at email@example.com or 414.828.4015.
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