Home > Employee Benefits > DOL looking to redefine term “fiduciary” – what that means for employer responsibilities

DOL looking to redefine term “fiduciary” – what that means for employer responsibilities

Vicarious-Liability-employment-contract-426x272Am I a fiduciary? I never like to answer a question with a question but do you make decisions for the 401(k) plan on behalf of the company? If you answered yes then you are in fact a plan fiduciary. There is no hotter topic in the 401(k) industry than the Department of Labor’s effort to redefine the term “fiduciary.” Yet with all the buzz surrounding the DOL’s proposal, many employers who offer a retirement plan are not aware of their fiduciary responsibilities and the liability that comes along with making 401(k) plan level decisions.

What is a fiduciary and who established the rules? Fiduciary responsibilities were instituted by the Employee Retirement Income Security Act of 1974 (ERISA) and are monitored by DOL. To ensure that fiduciaries are doing what is best for their employees and satisfying the DOL requirements ERISA has implemented standards of conduct, including:

  • Loyalty: To act solely in the interests of plan participants and beneficiaries (the “exclusive benefit” rule). This duty includes ensuring that plan expenses are reasonable and that benefits are paid.
  • Prudence: To act with the care, skill, prudence and diligence of a person who has experience dealing with similar situations (the “prudent expert” rule). Fiduciaries are not required to be experts in every area of retirement plan management; they can hire outside advisors such as attorneys, accountants, administrators and investment managers.
  • Diversification: To diversify the investments of the plan in order to provide participants with an opportunity to affect the potential return and degree of risk and to mitigate the risk of investment losses.
  • Follow Plan Documents: To administer the plan in accordance with the documents and instruments governing the plan, assuming the documents comply with ERISA.
  • Pay Reasonable Expenses: To evaluate the reasonableness of the fees and charges paid by the plan, taking into account the level of services received for the fees paid.

So who is a plan fiduciary? Each plan must have at least one fiduciary. A plan fiduciary can be defined as any one person who is named in the plan document as such. It can also be any person who exercises discretionary authority or control over plan assets and management, or someone who provides investment advise for compensation regarding the plan assets. Members of the investment committee, a plan administrator, trustee and any investment managers can be considered a fiduciary.

There are ways to ensure fiduciaries are delivering on their responsibilities as well. They include documenting their decisions, establishing an Investment Policy Statement (IPS), implementing a process for selecting and monitoring investment options and communicating properly with plan participants. There are also methods to reduce fiduciary exposure such as complying with ERISA Section 404(c), obtaining and maintaining an ERISA fidelity bond of at least 10% of plan assets up to $500,000 and purchasing a fiduciary liability insurance policy.

There are many facets of being a fiduciary, and with any responsibility comes liability. If you aren’t sure if you have measures in place to protect you from these risks or if you know you are not meeting your fiduciary responsibilities then you might benefit from having a conversation with a member of WGA’s Retirement Service team. We can help explain the importance of having procedures in place and institute a process to protect you going forward.


About the Author

James Richardson is a Client Executive at WGA. As a member of the Employee Benefits Group he advises emerging and middle market life science, biotechnology and professional services companies on retirement plan matters and has expertise in plan design, fiduciary protection, asset allocation and participant education

617.646.0353 | JRichardson@wgains.com | Connect with J.R. on LinkedIn

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