What is a fiduciary? A plan fiduciary is anyone that exercises control over
the plan and/or plan assets. Do you
decide or are you part of a committee that decides which plan service providers
to employ?
Do you decide which investment
options are offered in the plan? Do
you make decisions as to plan design?
If the answer to any of these questions is “yes” then you are a plan fiduciary.
What are the duties of a fiduciary? “A
fiduciary shall discharge his duties with respect to a plan solely in the interest
of the participants and beneficiaries “ (section 404 of ERISA). A fiduciary must execute these duties in a manner consistent with that of
a “prudent expert”. The prudent expert
standard is higher than a normal prudent man rule—which is what would an average person do. Plan decisions must meet the test of
what an expert in the field would do.
The role of a fiduciary is a serious one.
A breach in fiduciary duty can result in personal financial liability.
Can I hand off these duties? Many consultants and sales people mistakenly suggest that
a plan sponsor can shield themselves from fiduciary duties and liabilities by hiring
outside trustees and advisors. The
truth is that anyone
who exercises control over the plan is a fiduciary and is potentially liable for
breaches in fiduciary duties. Advisors
must be chosen by someone. That someone
is a fiduciary. This responsibility
cannot be handed off to some other entity though you can have co-fiduciaries. Certainly hiring qualified advisors
is advisable—perhaps even required if the fiduciary does not have the level of experience
necessary to satisfy the “prudent expert” standard.
Recent changes to retirement plan law now allow the plan
to hire an advisor to select plan investments and even direct participant accounts
for those who elect to have the advisor do so. Though monitoring the advisor is still the duty of the plan fiduciary(s)
liability for the decisions the advisors makes would not flow through to the plan
fiduciary.
For an advisor to become a fiduciary requires a series
of hurdles that must be addressed.
All agreements must be in writing, the fee for service must be level regardless
of the advice given and the advisor is required to be audited each year to insure
the advice given is appropriate for the plan. The advisor also takes on additional potential liability which the advisors’
fee will certainly reflect. The plan
sponsor needs to decide where the cost/benefit is worth the additional cost to participants.
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