• Tim Brockman

Let's talk about this thing called fiduciary responsibility

Updated: Aug 28, 2018

Fiduciary responsibility is all the rage these days in retirement plan conversations around the country. The average plan sponsor, however, doesn't really get it. Of course they're going to follow the rules and offer the best plan they can find for their employees. That's at the heart of being a fiduciary and doing what's right for the employee (plan participant). But let's dig a bit deeper on what it actually means to be a fiduciary.


ERISA, The Employee Retirement Income Security Act of 1974 sets strict standards for those who offer retirement plans. These rules or safeguards are designed to ensure the proper handling of the plan and plan assets on behalf of employees. In the event of a breach of fiduciary responsibility, the consequences, fines, etc. are significant. Plan sponsors must get up-to-date on these rules and get the best people in place to follow through on meeting these rules.


An ERISA fiduciary is usually the plan sponsor and those with admin functions of the plan. These people are usually the business owner(s) and the plan administrator (usually the HR or Controller of the company).


5 Main Fiduciary Rules

Fiduciaries have 5 main rules to follow in order to stay in compliance with ERISA. Here's a summary of each rule.

  1. Fiduciaries must act solely in the best interest of the plan participants (employees) for the exclusive benefit of the employees.

  2. Fiduciaries must carry out these duties with care and skill.

  3. Fiduciaries must diversify investments to reduce the risk of large investment losses.

  4. Fiduciaries must follow the terms of the plan document.

  5. Fiduciaries must pay only reasonable expenses from the plan assets.

But wait, who's responsible for these things?


There are 4 types of fiduciaries.

402 Named Fiduciary: Person who has overall responsibility for the plan (business owner).

3(16) Plan Administrator: Person responsible for the day-to-day administrative decisions for the plan.

3(21) Investment Advisor: Person who shares fiduciary responsibility with the plan sponsor for selecting and monitoring investments.

3(38) Investment Manager: Person who has discretionary responsibility over plan investments.


The people who have fiduciary responsibility above are the "team" who work together for the benefit of the plan participants. When there's a breach of responsibility, the fiduciaries can be held liable for plan losses caused by the breach and may have to compensate for corrections or excessive fees.


Where To Find Help

Our advice is to work with a retirement plans specialist so you have someone to rely on to navigate the complex set of rules set by ERISA. Fiduciary responsibility is no easy task. It requires constant monitoring and diligence to stay in compliance with the ever changing rules and landscape. Retirement plans are the best way to help employees prepare for retirement but offering one can be one of the most daunting tasks of a business.


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