WHAT IS A FIDUCIARY?

“The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions.”

— The Department of Labor


What is a fiduciary?  Am I a fiduciary?  What are the expectations for a plan fiduciary?  

There is a lot of confusion surrounding the term “fiduciary” and how it relates to your retirement plan.  Below are excerpts directly from the Department of Labor website (www.dol.gov) relating to fiduciaries on retirement plans.  While this list may not fully explain all of the nuances of fiduciary status, we hope it will provide an overview of some of the questions you may have.  We welcome the opportunity to discuss your individual situation with you.  Reach out to us @ 817–729-6410 or 214-998-3556.

 

What is a Fiduciary?

The Department of Labor (“DOL”) defines a fiduciary as someone who uses “discretion in administering and managing a plan or controlling the plan’s assets”.  The DOL states that “fiduciary status is based on the functions performed for the plan, not just a person’s title.”

 

What are the Responsibilities of Being a Fiduciary?

Fiduciaries are held to an extremely high standard of conduct because they act on behalf of retirement plan participants (and their beneficiaries).

The DOL identifies these responsibilities as:

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Carrying out their duties prudently;
  • Following the plan documents (unless inconsistent with ERISA);
  • Diversifying plan investments; and
  • Paying only reasonable plan expenses.

 

So, am I a Fiduciary?

The short answer is:  Possibly.  Just because you may not feel that your title is “important enough” to be a fiduciary, you may still be a fiduciary for the plan. A fiduciary can be anyone from the CEO or CFO down to a Payroll or Benefits Manager.  The presence of fiduciary responsibility varies from employer to employer and from job function to job function.  If you have any control over the plan’s operation, chances are that you have at least some fiduciary responsibility.

A 2015 survey of 756 plan sponsors by JP Morgan indicated that only 56% of the respondents identified themselves as a fiduciary for their plan, while 100% were actually a fiduciary on the plan.

 

Are We Required to Have a Fiduciary?

Yes. All plans are required to have at least one fiduciary. This can be either a person or an entity and can be named directly in the written plan, or can be described in the plan through a process as having control over the plan’s operation. If the plan does name a fiduciary, they can be identified by office or by name. In some instances, an administrative committee or a board of directors may be the fiduciary.

 

Can We Off-load Our Fiduciary Responsibilities?

In short: No.  A plan can reduce the amount of fiduciary responsibility they keep, but cannot fully rid themselves of all fiduciary responsibility.  By utilizing a retirement plan advisor who acknowledges their fiduciary role in writing, the plan may reduce their fiduciary responsibilities as they relate to the investments and various plan provisions.  It is crucial to understand the responsibility in monitoring the actions of all plan fiduciaries.

 

Will All Advisors/Consultants Act as a Fiduciary on My Plan?

No.  This is where it is important to ask the correct questions. Many advisors/consultants are unwilling or unable to act as a fiduciary on your plan. Some do not want the perceived liability that is associated with being a fiduciary, while others are prohibited from acting in such a capacity by their back office. Still, others will offer a “band-aid” solution by stating that one of their service providers act as a fiduciary (while they do not).

If your advisor/consultant is not willing/able to act as a fiduciary on your plan, are you willing to stake your livelihood (and money) on the hope that they are acting in your plan’s best interest?

(Note: Legacy 401k Partners will agree – in writing – to be a fiduciary on our client’s plans. We understand the importance of this responsibility and believe that this is not something that our client’s should have to undertake on their own.)

 

* Unless otherwise noted, all information cited from The Department of Labor’s website on Meeting Your Fiduciary Responsibilities (http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html)