Minimizing fiduciary risk – part 1 of 2

Plan fiduciaries are increasingly accountable for the plans they manage, even to the point of personal liability. To help you understand how to minimize your personal and corporate risk, I first want to define ‘fiduciary.’ Plan sponsors are fiduciaries, but so are all parties who exercise discretion or control over a plan. ERISA (Employee Retirement Income Security Act) established standards of conduct for plan fiduciaries. According to the Department of Labor, retirement plan fiduciary responsibilities are to:

• Act solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them
• Carry out duties prudently
• Follow plan documents (unless inconsistent with ERISA)
• Diversify plan investments
• Pay only reasonable plan expenses

While liable for personal actions, fiduciaries may also be liable for the actions of co-fiduciaries. Monitoring of fees is a good example of areas where co-fiduciaries may be involved. And, many high profile lawsuits have occurred over the issue of fees paid to vendors for plan expenses.

To protect the financial interests of a company (and responsible individuals), fiduciaries must:

• Understand the scope of fiduciary responsibilities
• Identify and monitor the roles and responsibilities of all co-fiduciaries
• Follow the plan document
• Document all contracts, services, expenses, decisions
• Secure fiduciary insurance and ERISA bonds as needed

Next week, I’ll give you some specific ways that you can safeguard your plan and your position.

Tags: 401(k), Fiduciary Responsibility, Retirement Plans