Fiduciary Fallout – Ignorance is not Bliss. Are you aware of your fiduciary responsibilities? If you said no, you’re not alone. We hear consistently that plan sponsors don’t fully understand what their duties are when it comes to managing their retirement plan. When it comes to your fiduciary liability, though, it’s critical to understand what you’re on the hook for. As the old saying goes, ignorance of the law is not an excuse. Moreover, it could result in dire consequences for the plan, and for you.
The most important thing to know about your responsibility as a fiduciary is that you should always act prudently in line with the law, and make decisions that you can clearly prove were made in your participants’ best interests.
Forbes published an article that took a look at fiduciary liability in the context of Tibble v. Edison — one of the biggest and most high-profile retirement plan lawsuits to hit the industry stage in recent years. The outcome? The case landed in Supreme Court and the VP of Human Resources was found liable for a fiduciary breach.
Investment fees were at the heart of Tibble v. Edison, as they are with many fiduciary liability lawsuits being brought against plan sponsors these days. That’s one of the reasons why it’s so important to review your plan’s investment fees early and often and make sure the investment options being offered are, again, in your participants’ best interests. Not to mention, it’s your fiduciary duty to do so.
That said, it’s important to approach your fiduciary responsibility logically. In other words, don’t freak out. There are proactive steps you can take to make sure you’re acting as a prudent and vigilant fiduciary. Brian Menickella*, who penned the Forbes article, recommends two specifically:
For one, if you haven’t done so already, consider hiring an investment fiduciary who can help you manage the investment portion of your retirement plan. In some cases, an investment fiduciary can even provide participant education support to help your employees make informed investing decisions.
A word of caution: there are different types of investment fiduciaries — such as ERISA 3(38) and 3(21) — and providers may define their roles differently, so be sure to pay careful attention to the services being offered, and ask questions to make sure your investment fiduciary is knowledgeable and will be able to provide the support you and your retirement plan need.
In addition, a retirement plan investment committee — ideally hand-in-hand with an investment fiduciary if you don’t have an expert in-house (or even if you do) — can also help you manage your fiduciary duties. We’ve written previously about how to build and manage an effective retirement plan committee. To refresh your memory, some of their duties may include creating an investment policy statement (IPS), establishing guidelines for the committee’s purpose and responsibilities and the roles of individual members, and keeping detailed documentation in support of plan decisions and other key fiduciary activities.
Menickella writes:
“Members should be well-versed in the investment plan and strategy and work towards ensuring the plan is responsibly managed and adapted if necessary as legal precedents are set. While investment committees are not required under ERISA, they are a good risk management mechanism and enable plan sponsors to focus on the important issues that impact plan participants. Committees aim to ensure due diligence and fiduciary duties are always appropriately met and help avoid the types of decisions that lead to costly lawsuits.”
While it’s nearly impossible to guarantee avoidance of a lawsuit, being proactive about understanding your fiduciary responsibilities and creating stop gaps to help you fulfill them — like hiring an investment fiduciary and creating an active, knowledgeable retirement plan committee — can certainly reduce your chances. It’s also in your participants’ best interests for you to do the right thing when it comes to meeting your fiduciary duties.
*Brian Menickella is a Forbes contributor and the founder of The Beacon Group of Companies, a financial services firm that offers companies and individuals advice on insurance, investing and employee benefits.
