How do you know if you are a Plan Fiduciary? If you are not sure, or even if you think you are not, chances are you might be. The easiest way to check is to look at your Plan’s 5500, Plan Document, Service provider agreements. If you’re signing the 5500 or your name is listed in the plan document changes, you are a plan fiduciary. So what does this mean? What exactly is a fiduciary? What are you duties? Do you have any personal legal liability?
What is a Fiduciary?
- Any person (with respect to a TRUST) exercises any discretionary authority or discretionary control regarding management of the plan, or exercises any authority or control regarding management or disposition of its assets; or
- Renders investment advice regarding plan assets for a fee or other compensation, direct or indirect, or has any authority or responsibility to do so; or
- Has any discretionary authority or discretionary responsibility in the administration of such plan.
What are Your Fiduciary Duties?
- Duty of Loyalty (Exclusive Purpose Rule) - a duty to act solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits and minimizing expenses;
- Duty to Act Prudently (Prudent Expert Standard) - a duty to act 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 the conduct of an enterprise of a like charter and with like aims;
- Duty of Diversification - a duty to diversify 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
- Duty to Follow Plan Documents - a duty to act in accordance with the documents and instruments governing the plan insofar as such documents and instruments are not inconsistent with the provisions of ERISA including the plan's investment management agreements and investment policy statement.
What is the Liability for Breach of Fiduciary Duties?
- ERISA Section 409(a) imposes personal liability on fiduciaries that breach their fiduciary duties.
- "Fiduciaries of an employee benefit plan [such as a 401(k) plan] are charged with carrying out their duties prudently and solely in the interests of the participants and beneficiaries of the plan, and are subject to personal liability to, among other things, make good any losses to the plan resulting from a breach of their fiduciary responsibilities" ERISA Interpretive
So here is the good news! Did you know that you can delegate your Fiduciary Responsibility? And that ERISA’s original intent was for retirement plan investments to be managed and run by experts?
Check back next week for details on How to Delegate Fiduciary Responsiblity. Can’t wait? Contact me today and I will send you the information prior to its release.