Reduce Your 401(k) Fiduciary Risk

If you make decisions for your company’s 401(k), you are a fiduciary. Every retirement plan needs at least one trusted, reliable fiduciary, someone who works in the best interest of the plan and its participants. To better understand your role as a fiduciary, consider these common questions.

As a fiduciary, you’re expected to act prudently and to consider how your decisions will affect plan participants. It also means you need to have administrative systems in place that document your decisions and communicate important details to participants. If you don’t meet your fiduciary responsibilities, you may be liable for harm caused by your decisions. Fiduciary mismanagement could cost you and your company tens of thousands of dollars in legal fees and fines.

Being a fiduciary means you’re liable if something goes wrong with your plan. When considering your liability, understand:

• Ignorance is no defense in a court of law.
• A fiduciary is personally liable to make good on plan losses due to an ERISA provision breach.
• The Department of Labor may assess a civil penalty equal to 20% of the recovery amount.
• Individuals may be fined up to $100,000 and jailed up to 10 years for ERISA violations.
• Companies may face up to $500,000 in fines for ERISA violations.

There are three types of retirement plan fiduciaries.

• A 3(38) investment manager is a fiduciary who is responsible for plan investment decisions. Your responsibility is to select and oversee your fiduciary.
• A 3(21) investment adviser is a co-fiduciary, which means they make investment recommendations, but the ultimate decision is up to you and you’re still responsible and liable for the decisions made.
• A 3(16) administrative fiduciary is responsible for fulfilling specific administrative duties on behalf of the plan. For example, a 3(16) administrative fiduciary signs and files Form 5500 with the Department of Labor and approves loans.

Yes, you can outsource many fiduciary duties including investment management and administrative tasks. Outsourcing fiduciary duties can reduce both your liability and administrative burden. Some retirement plan providers, third-party administrators, or record keepers offer fiduciary services. If you consider outsourcing with a fiduciary, find out exactly what services they offer and what responsibilities remain with you. Some leave critical duties up to you. Watch out for fiduciaries who:

• Have incentive structures that include revenue sharing or kickbacks.
• Don’t help and maintain a fiduciary audit file.
• Don’t offer fiduciary education for your plan committee.

As a 3(38) investment manager, Fisher maintains the highest fiduciary standards and will partner with you to make sure you, your company, and your employees are protected.