Managing a retirement plan involves far more than selecting investments and processing contributions. If you oversee a retirement plan, you have a legal responsibility to act in the best interests of the plan and its participants. The people who take on these responsibilities are called plan fiduciaries — and understanding what that means is an important part of administering a successful plan.
What is a plan fiduciary?
A plan fiduciary is a person or organization responsible for making decisions about a retirement plan or managing the assets within it. Federal law requires fiduciaries to act solely in the best interests of plan participants and beneficiaries. This responsibility isn't based on a job title — it's based on the actions a person takes in administering or managing the plan.
Who can be a plan fiduciary?
Depending on the structure of the plan, fiduciaries may include:
- The employer or plan sponsor
- Members of a retirement plan committee
- Individuals responsible for selecting or monitoring investments
- Anyone with discretionary authority over plan administration or plan assets
Some responsibilities can be delegated to outside professionals, but plan sponsors generally retain oversight responsibilities.
What are a fiduciary's responsibilities?
Plan fiduciaries carry several important responsibilities:
- Acting solely in the best interests of participants and beneficiaries
- Carrying out their duties with care, skill, prudence, and diligence
- Following the plan documents, to the extent they comply with applicable law
- Monitoring the plan's investments and service providers on an ongoing basis
- Ensuring that plan fees are reasonable for the services provided
- Avoiding conflicts of interest wherever possible
These responsibilities require regular attention and thoughtful decision-making throughout the life of the plan.
What does this look like in practice?
Example: A retirement plan committee reviews the plan's investment options each year. One mutual fund has consistently underperformed similar investments while charging significantly higher fees. After evaluating the alternatives, the committee replaces it with a lower-cost option. In doing so, the committee fulfills its fiduciary responsibility — monitoring performance and making a decision in the best interests of participants.
What happens if fiduciary duties are not met?
Failing to meet fiduciary responsibilities can have serious consequences. Fiduciaries can be held personally liable for losses resulting from a breach and may be required to restore those losses to the plan. Beyond financial liability, fiduciary breaches can lead to government investigations, corrective actions, or legal proceedings.
How can fiduciaries manage their responsibilities?
A few good habits go a long way toward serving participants' interests well:
- Document important decisions and the reasoning behind them
- Review and evaluate investments and service providers regularly
- Keep plan documents current and follow their provisions
- Stay informed about changes in retirement plan laws and regulations
- Work with qualified legal, investment, and retirement plan professionals when appropriate
Keeping this review process consistent helps demonstrate that decisions are made prudently and in participants' best interests.
The bottom line
Fiduciaries help protect participants' retirement savings by making informed decisions, following a thorough process, and monitoring results. Being a plan fiduciary means accepting a legal obligation to act in participants' best interests. If your organization is evaluating its fiduciary responsibilities or considering additional fiduciary support, contact us to learn how we can help.
This material is provided for general informational purposes only and is not intended as tax, legal, or fiduciary advice. Specific compliance requirements and deadlines depend on your plan's design and circumstances. Consult your retirement plan professionals before acting.