Expert Advice on 401(k) Fiduciary Responsibilities

Expert Advice:
Teressa Rambo, DataPath Retirement Services Inc.

What is a fiduciary?
A fiduciary has been defined as someone acting in a position of trust on behalf of, or for the benefit of, a third party. Fiduciaries of a 401(k) plan carry great potential liability, even personal liability in the case of litigation or a Department of Labor audit. The first line of defense against the many pitfalls fiduciaries face is a good education program.
Fiduciary education, done properly, can highlight current plan issues and provide direction and solutions. The goal is to make the plan bulletproof by ensuring adherence to the plan document and the rules of ERISA, the federal Employee Retirement Income Security Act. Most plan sponsors do not realize their duties under ERISA.

Who is a 401(k) plan fiduciary?
Fiduciary status is based on the functions performed for the plan, not just a person’s title. ERISA states a person is a fiduciary with respect to a plan to the extent he:

• Has discretionary authority over the plan or plan investments;
• Renders investment advice for a fee or other compensation; or
• Has discretionary authority in the administration of the plan.

The individuals who typically fall into those categories are:

• The owner or CEO of a company with a qualified retirement plan;
• Investment committee members or any person responsible for making plan decisions;
• Any person who provides investment advice to the plan or its participants for a fee; or
• Any person having discretion over plan assets.

Fiduciary responsibility is a hard thing to get rid of. Outsourcing some of a fiduciary’s responsibilities does not limit or eliminate responsibility under ERISA. However, fiduciaries do have a duty to hire competent providers, especially if the expertise they have is lacking. And as with any law, ignorance is never a defense and therefore education becomes invaluable.

As a plan sponsor, what are my responsibilities under ERISA?

• Vetting and hiring of retirement plan services providers, such as advisers and record-keeping services or other "prudent experts" to implement the investment policy;
• Controlling and accounting for investment expenses;
• Determining investment goals and objectives;
• Establishing an explicit, written investment policy statement consistent with the goals and objectives;
• Monitoring the activities of the overall investment program for compliance with the IPS; and
• Avoiding conflicts of interest and prohibited transactions.