Understanding Fiduciaries and their Responsibilities
Get answers to commonly asked questions about 401(k) fiduciaries; what is a fiduciary, who is a fiduciary and more. This is a quick two-page guide to familiarize yourself with fiduciary responsibility related to running a 401(k) plan.
What is a Fiduciary?
A 401(k) fiduciary is anyone who makes decisions or takes action on behalf of a 401(k) plan or its assets. Fiduciaries have a legal obligation to act prudently (with care and good judgment) and with the best interests of their employees in mind.
Specifically, under ERISA, a 401(k) fiduciary is required to:
- Act prudently in all plan duties.
- Act in the best interest of plan participants.
- Understand and follow the plan document.
- Diversify investments and ensure fees are reasonable.
- Avoid prohibited transactions.
Who is a Fiduciary?
Every 401(k) plan has at least one fiduciary named in the plan document, but you may be a fiduciary and not even know it.
You are a 401(k) fiduciary if:
- You are a plan sponsor or are named as a fiduciary in the plan document.
- You make any management decisions about the 401(k) plan.
- You have any discretionary authority over the 401(k) or its administration.
- Your title implies a fiduciary status (i.e. chief financial officer, director of human resources).
- You are a plan trustee or sit on the Board of Directors.
- You select investments or provide professional investment advice for the plan.
Other fiduciaries can include investment committee or 401(k) administrative committee members, and anyone who selects 401(k) committee officials or investment advisers. Plan fiduciaries typically do not include attorneys, accountants, or actuaries acting solely in their professional capacity.
Types of Fiduciaries and Their Responsibilities
Plan responsibilities and duties can be confusing, time consuming, and require a professional level of expertise in order to meet the ERISA standards of prudence and acting in the best interest of employees.
Fortunately, ERISA allows a plan sponsor to hire service providers with the required knowledge to carry out some of the responsibilities. Plan sponsors can limit their own personal liability by sharing fiduciary responsibilities with partners who are required by law to act in the best interests of employees and the plan.
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