How do you uphold your fiduciary responsibility?
How well do you understand your role as fiduciary?
Many companies establish retirement plans without thorough understanding of their fiduciary responsibilities. Understanding your fiduciary role as plan sponsor is paramount due to the risk associated when offering an ERISA regulated retirement plan. A fiduciary that breaches any obligation can be held liable, even if the breach of duty wasn’t known or intended. Ignorance or lack of expertise will not be a sufficient defense in the event of litigation.
What are your fiduciary duties?
The primary duty of all ERISA fiduciaries is to act in the sole interest of the plan and its participants and beneficiaries. The plan fiduciary must:
- Act with the care, skill, prudence and diligence of a prudent person who is familiar with retirement plan matters.
- Follow the plan documents.
- Pay only reasonable plan expenses.
- Diversify plan investments.
- Avoid conflicts of interest.
How can liability be shared or transferred?
- Fully document steps taken to select prudent investment managers.
- Regular monitoring of plan expenses for reasonableness.
- Allow participants to manage their own accounts.
- Avoid prohibited transactions.
- Bonding to protect against acts of fraud.
- Partner with an advisor willing to accept greater responsibility.
Who can you partner with to reduce liability?
Some employers may choose to have a “hands-on” approach and do the investment selection themselves; others may wish to delegate the task entirely. Dependent on the role of the advisor, you as the plan sponsor may be accepting a higher degree of risk. Distinct advisor roles can facilitate the plan functions and offer solutions that may alleviate risks the employer is unwilling to accept.
|DIFFERENCES||BROKER/AGENT||ERISA 3(21) Advisor||ERISA 3(38)Advisor||BENEFITS TO EMPLOYER USING 3(38)|
Act as fiduciary?
|Yes (shared with sponsor)||
|Significantly reduce, if not eliminate conflict of interest|
|May provide participant education?||YES||YES||YES||Potential for higher asset retention|
|Have a vested interest in reducing plan expenses?||NO||POSSIBLY||YES||Can reduce plan risk and costs|
|Can plan sponsor transfer liability?||
|Responsible for investment selection and monitoring|
|Accepts fiduciary responsibility in writing?||NO||YES||YES||Transfer legal liability away from employer|
For more information regarding fiduciary responsibilities from the Department of Labor website, click here.
Nate Lovik, AIF®
Investment Advisor Representative
RDAFN.COM 2522 22nd Ave SE, Rochester, MN 55904 (319) 325-7854 or (888) 300-4975. Securities offered through United Planners Financial Services, Member FINRA/SIPC. Advisory services offered through RDA Financial Network, a Registered Investment Advisor. United Planners and RDAFN are not affiliated.