Fiduciary Surprises Surface in Many Forms

Stressed Over MoneyFiduciary surprises can be packaged in many different wrappers.  Some fiduciary surprises arrive on the scene without the retirement plan fiduciary even knowing it!

Retirement plan sponsors and fiduciaries have a tremendous amount of responsibility.  It can be difficult for fiduciaries to wrap their heads around those duties.  However, while committee members may not always understand if they’re a fiduciary in the first place, they are also frequently unaware of their duties and exactly what they’re supposed to do.  In fact, plan sponsors often end up managing the retirement plan as one of the many hats they wear.  The fiduciary’s role can be risky because there’s a lot of liability in being a plan fiduciary.  Fiduciary surprises can sometimes be costly!

That’s what Nevin Adams, chief content officer for the American Retirement Association, and Fred Reish, a partner in Faegre Drinker’s Benefits and Executive Compensation practice group, talked about recently on their Nevin & Fred podcast.  According to Mr. Adams, as paraphrased in a recent BenefitsPro article, “When it comes to workplace retirement plans, he said, there are three kinds of people:  Those who are ERISA fiduciaries and know it; those who aren’t ERISA fiduciaries and know it; and those who are ERISA fiduciaries but don’t know it.”

According to Mr. Reish, a fiduciary’s role is not to do what participants want, but what’s best for them.  That requires having the right information, undergoing a prudent process, getting input from other fiduciaries or professional advisors if/when they need it, and documenting all of their processes and decisions.  In their podcast, Messrs. Adams and Reish discussed seven things all retirement plan fiduciaries should know:

  • Clearly define your role: A plan sponsor is more than just a title.  It’s based on what that person does.  Fiduciaries should assume they are fiduciaries until proven otherwise, whether they know they have the role or not, Mr. Adams asserted.  And fiduciary training is key to success, starting with the basics.
  • You can’t really outsource:  You can give up small parts of a fiduciary role, but the fiduciary is always the decision-maker, which puts the liability squarely on their shoulders.
  • Selection committees may be liable:  If you’re responsible for selecting people to administer the plan, then you are a fiduciary, according to Mr. Adams.
  • Co-fiduciary does not equal safety:  Hiring a co-fiduciary doesn’t free you from, or reduce your fiduciary liability.
  • You can’t just walk away from fiduciary responsibilities:  In other words, you can’t just quit and abdicate your fiduciary duties to a retirement plan.  There are plan procedures that need to be followed, and you must ensure that there is continuity and that another fiduciary is carrying out the roles and responsibilities you’re no longer doing, and that no one will be hurt due to your absence.
  • You are personally exposed to liability risk:  When you serve as a fiduciary, you have to buy extra insurance to guard against personal liability, Mr. Adams said.  In most cases, standard corporate insurance will not cover you in the event of a fiduciary breach.
  • You’re expected to be an expert:  According to Mr. Adams, “… if you can’t be an expert, then you are expected to hire somebody who is.  Remember ERISA’s prudent man rule.  You have to reach informed and reasoned decisions consistent with that standard.”

Being a retirement plan fiduciary is serious business.  No one wants fiduciary surprises!  Additional fiduciary education is available through The Plan Sponsor University.


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