Many people may wonder how to determine whether they are a fiduciary to a retirement plan, and if so, how to properly discharge their duties and where their risk might lie. Below are what we consider to be the top 5 things you need to know as a plan fiduciary.
- You may be a Fiduciary to a retirement plan and not know it.
- The Department of Labor (DOL) and IRS have increased their focus on audits and penalties.
- ERISA holds plan fiduciaries personally liable for losses in the plan if they fail to perform their fiduciary duties.
- The plan fiduciary can be held responsible for an individual participant’s investment choices.
- Fiduciaries are not held to a standard of performance when selecting plan investments; the standard to which they are held is that of whether a prudent process was followed.
A general rule regarding fiduciary responsibility with regard to ERISA-based plans is that if you have the authority to make decisions or effect change in a retirement plan, you could be found to be a fiduciary to the plan.The best safeguard against being unexpectedly named as a fiduciary to the plan in an adverse situation is to ensure that there is proper documentation that delegates certain plan authority and responsibilities to an individual or a committee.
The DOL audit staff now numbers more than 1,000 who conduct more than 3,000 audits per year and find some type of plan failure in 70% of the audits performed.
For fiduciaries to protect themselves, many experts agree that the best course of action is to hire an expert in the area of strong ERISA fiduciary process.
ERISA section 404(c) provides protection from this potential exposure, but there are specific rules that a plan must satisfy. Ultimately, even with Section 404(c) and whether its rules are satisfied, fiduciaries still retain the responsibility to select investment options prudently and monitor them on an ongoing basis.
Fiduciaries have the obligation to prudently select, monitor and replace all service providers to a plan. Having an objective, deliberate process that evaluates and defines the services being delivered and compares them to the fees being paid to each service provider is crucial. This process should be applied to managers of investment funds, record keepers, administrators and advisors.
Please note that these opinions are our own and do not necessarily reflect those of LPL Financial or Global Retirement Partners.