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.   Continued >>