Plan fiduciary? Know your responsibilities to protect your plan & yourself

February 22, 2023

verifying financial information

Are you a plan fiduciary?

If you are, are you aware of your legal fiduciary duties, and can you demonstrate the steps you take to meet your responsibilities?

Plan fiduciaries are held responsible for making sure the plan is run in the interest of participants and beneficiaries, for the sole purpose of providing benefits and paying plan expenses.1

Failure to meet fiduciary requirements can result in a person becoming personally liable for restoring losses to a plan, or for restoring any profits made through improper use of plan assets. Fiduciaries found in court to have breached their duties may even be removed from their role with a plan.1

One of the most important steps a plan sponsor can take is to ensure they understand fiduciary duties to avoid missteps or errors.

Who are your plan fiduciaries?

One of the ways the Employee Retirement Income Security Act (ERISA) protects plan assets is by holding certain individuals and/or entities accountable as plan fiduciaries. There are two types: named fiduciaries (which includes those appointed to fiduciary roles) and functional fiduciaries. Among these individuals and entities are those who:1

  • Exercise discretionary authority and/or control over plan administration
  • Have discretionary authority or responsibility in plan administration
  • Exercise authority and/or control over the management or disposition of plan assets
  • Advise on plan investments and/or participant investments in exchange for compensation, whether direct or indirect

A plan can have one fiduciary responsible for all of these functions, or several fiduciaries who have different responsibilities. Examples can include plan administrators, plan investment committee members, trustees and company board members. Plan committee members at smaller companies most often include key company executives such as the president, chief financial officer and office manager. Large companies sometimes include additional committee members like corporate legal counsel, leaders from human resources or finance, and others. Every member of the plan committee is a fiduciary.

The plan document either names specific fiduciaries or details procedures for their selection, so every plan fiduciary should know when they are one. Generally, fiduciaries are held responsible only for the duties delegated to them — unless they start making decisions or exercising control over other aspects of the plan. In that case, a fiduciary can be held responsible for those additional actions as well. 

What are a fiduciary’s typical responsibilities?

As mentioned above, fiduciaries are required to act solely in the interests of plan participants and beneficiaries, and ensure that the plan provides the benefits participants earn. Generally, this means:

  • Acting with care, skill, prudence and diligence when making any decision about the plan
  • Diversifying plan investments or investment options, to minimize the risk of significant losses
  • Acting in accordance with all plan documents and instruments that govern the plan
  • Ensuring plan expenses are reasonable relative to current standards

Who’s not usually a plan fiduciary?

While a plan administrator is always a fiduciary, some of the professional service providers an administrator often hires, like a third-party administrator (TPA) or recordkeeper, are not typically fiduciaries. TPAs and recordkeepers are usually hired for services like technical compliance issues and filings, plan documents and plan communications to employees.

Other individuals involved in a plan who aren’t fiduciaries can include plan “settlors,” which is a term used to describe a person who sets up a plan or trust.

Some actions and responsibilities that are not fiduciary activities include:

  • Calculating benefits according to rules in the plan document
  • Applying other rules clearly outlined in the plan
  • Maintaining records and preparing filings and reports
  • New plan participant orientation and education
  • Maintaining employment and service records of plan participants
  • Collecting and applying plan contributions according to plan provisions

How to avoid violating the fiduciary rule

It’s absolutely vital that any plan fiduciary invest the time and effort to know what the plan provides, and to follow its terms. This includes reviewing the plan document and summary plan description. If there are aspects of the plan document that you don’t understand, seek professional guidance to learn what you need to know. And never make a decision without reviewing plan and trust documents related to that decision.

Other key ways to demonstrate fiduciary responsibility include:

  • Retaining records for at least six years — including records covering vesting, benefits calculations, distributions and committee meeting minutes
  • Maintaining due diligence files on services providers and advisers to the plan
  • Documentation of monitoring plan operation and investments
  • Reviewing plan expenses and comparing against benchmarks to ensure they’re reasonable

Fiduciaries can also be held responsible for failure to act when another fiduciary acts improperly. Knowingly participating in another fiduciary’s breach, concealment or improper act — or failure to correct an improper act by another fiduciary — can result in “fiduciary liability.” So if you ever have concerns or suspicions, it’s imperative that you take and document steps to correct the situation right away. Inform committee members and reach out to an ERISA attorney.

Where can fiduciaries find help?

Clearly, it’s possible to be held accountable for a plan as a fiduciary even without being fully knowledgeable about ERISA rules. That’s one reason why it can be immensely helpful to work with a retirement solution provider that can provide more than plans and recordkeeping services. Look for a provider that also offers educational materials, co-fiduciary services, and tools including fiduciary guides and checklists that can help you understand where your responsibilities lie.

Your selection of plan features can also help you meet your responsibilities. Some special plan features can include:

  • Professional pre-screening and monitoring of investments by a plan investment committee
  • A paid board of trustees that accepts fiduciary responsibility for investment selection and monitoring
  • Research and performance reports on investments in the plan

Whether you already have a plan in place or you’re considering adding an offering, there is risk involved and ERISA fiduciaries are held to high standards. The plan committee should make sure the plan has a compliant ERISA fidelity bond and adequate fiduciary liability coverage.

What else do I need to know?

Fiduciary responsibilities can involve a great deal of detail. Plan design choices and other safeguards can go a long way toward not only helping to set a plan up for success, but to help all its fiduciaries meet and demonstrate their responsibilities. The best place to start is by speaking with a plan provider. Ask for specifics about how they can help educate and support fiduciaries — and request resources and tools.

1, Fiduciary Responsibilities, no date.