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A fiduciary acts on behalf of retirement plan participants’ and their beneficiaries’ best interests. Therefore, fiduciaries are subject to standards of conduct under ERISA. Their central responsibilities include:

  • Prudently carrying out duties. To do so requires expertise in a variety of disciplines. If a fiduciary lacks expertise in a specific area, such as investments, it is advisable to hire someone with the professional knowledge to carry out the investment. Prudence focuses on the process for making fiduciary decisions. For instance, when hiring a plan service provider, a fiduciary should survey multiple providers based on specific criteria, document the process and make meaningful comparisons before choosing the provider.
  • Following the terms of the plan document. The document serves as the foundation for plan operations. Employers should understand and periodically review the document to ensure it remains current.
  • Diversifying plan investments. Diversification helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio and document their evaluation and investment decisions.
  • Paying only reasonable plan expenses. Plan assets can pay for plan expenses as long as they are prudent, reasonable, and permitted by the plan document. Considering these fees directly affect participants’ accounts, fiduciaries need to continually monitor plan expenses to ensure they are reasonable in light of the services provided.

With fiduciary responsibilities comes potential liability. Fiduciaries must follow the basic standards of conduct, or they may be personally liable to restore losses or profits made through improper use of the plan’s assets. Documenting the processes used to carry out their fiduciary responsibilities is one way to manage their liability. Others include:

  • Investment Selection. Most 401(k) and profit sharing plans allow participants to control the investments in their accounts. Thus, reducing but not eliminating a fiduciary’s liability for the investment decisions made by the participants. For participants to gain control, they must have the opportunity to choose from a broad range of investment alternatives. Labor Department regulations require fiduciaries to provide at least three different investment options – allowing employees to diversify investments within an investment category. In addition, participants must receive sufficient information to make informed decisions about the options offered under the plan. Lastly, participants must be allowed to give investment instructions once a quarter, and perhaps more often if the investment option is volatile.
  • Automatic Enrollment. In plans that automatically enroll employees, fiduciaries can limit their liability for any plan losses that result from automatically investing participant contributions in certain default investments. There are four types of investment alternatives for default investments as described in Labor Department regulations. Fiduciaries must provide initial notice and annual notice to participants. Also, participants must have the opportunity, options and resources necessary to direct their investments.

ERISA holds all sponsors of a retirement plan to the highest standards of being prudent investment experts – even though they are rarely investment experts. There is no substitute for the in-depth expertise retirement advisers deliver on behalf of plan sponsors and participants. Understanding fiduciary responsibilities is important for the security of a retirement plan, compliance with the law, and serving your participants.

Bluestone, Andrew S. “Brushing up on Fiduciary Duty.” Employee Benefit Adviser. 2012. SourceMedia Inc. 27 Feb. 2012. <>