04 May May 04, 2015

Are you a Fiduciary?  You might be and not even know it.

This article is part of a Plan Sponsor’s Guide to 401(k) and 403(b) Plans.  Download it today!

Are you a Fiduciary?  You might be and not even know it.

The key factor in determining if the individual or entity is a fiduciary is whether they are exercising discretion or control over the plan.  One does not need to specifically be named a fiduciary – the role is determined by action, not title.

The role of the fiduciary is to manage an employee benefit plan and its assets.  This usually includes trustees, investment advisors, individuals exercising discretion in the administration of the plan, members of the plan’s administrative committee, and those who select committee officials.

Fiduciary Responsibilities Include:

  • Acting solely in the interest of plan participants and their beneficiaries with the purpose of providing benefits to them.
  • Following provisions of plan documents.
  • Carrying out duties prudently.
  • Diversifying plan investments.
  • Paying only reasonable plan fees.

Common Risk Areas Fiduciaries Should be Aware of:

  • Not operating the plan in accordance with the plan document.
  • Not making timely plan contributions.
  • Not taking action when issues are discovered.
  • No investment policy.
  • Not having appropriate plan governance (e.g. plan committee and investment committee).
  • Not having regular committee meetings and documenting those minutes.
  • Not understanding plan costs.
  • Not regularly reviewing the service agreements with the vendors or not understanding the provisions of the contracts.

Responsibilities Regarding Service Providers:

  • Select and monitor plan service providers, and ensure that they are performing all agreed upon services.
  • Read and understand contracts with vendors, as well as understand the services to be provided to the plan by each vendor and who is paying for them.
  • Hire outside advisors with required expertise to assist with administering the plan as needed.
  • Develop and follow a process for reviewing service provider fees on an ongoing basis.
  • If there is a change in the plan or Third Party Administrator (“TPA”), facilitate the transition
    document and ensure there are no mistakes or oversights.

Responsibility to Communicate to Participants:

  • Hold regular educational meetings and investment advising programs for participants.
  • Provide participants with copies of:
    • Summary Plan Description.
    • Summary Annual Report.
    • If applicable, notices of automatic enrollment and blackout periods.
    • If applicable, Summary of Material Modifications.


Responsibility for Plan Assets:

  • Determine whether the organization should create an internal investment committee or contract with a qualified third party to review the performance of the investment options the plan is offering.
  • Adopt a written investment policy, diversify investment choices to minimize risk of loss.
  • Understand how often participants are allowed to change investment elections.
  • Determine whether the trust documents prohibit any asset choices.
  • Document with written minutes any deliberations and decisions.
  • Select and monitor investments within the plan.

Additional Fiduciary Responsibilities Include, but are Not Limited to:

  • Ensure that all employees understand the plan.
  • Ensure the plan complies with ADP and ACP testing.
  • Ensure that the ERISA bond is adequate. The requirement is the lesser of 10% of plan assets or $500,000, with a minimum of $1,000.  If the plan holds employer securities the bond required is the lesser of 10% of plan assets or $1,000,000.
  • Ensuring that no prohibited transactions, unless exempted, occur. Prohibited transactions include:
    • Sale, exchange, or lease between plan and party-in-interest.
    • Lending money or other extension of credit between plan and party-in-interest.
    • Furnishing goods, services, or facilities between the plan and party-in-interest.
  • Appoint roles and delegating responsibilities.
  • Consider if legal counsel and/or a financial advisor should be present at the meetings.

Plan Sponsors Should be Mindful of the Following Considerations When Performing Their Fiduciary Duties:

  • Could an “outside observer” follow your decision process by reviewing meeting minutes?
  • Are your documented processes for plan investments aligned with your investment policy statement guidelines?
  • Does monitoring criteria described in the investment policy statement match your performance monitoring criteria?


If you have questions about your plan, please contact Jay Kessler.   Read the full Plan Sponsor’s Guide to 401(k) and 403(b) Plans.