Managing a qualified retirement plan comes with significant responsibilities, especially for those serving as fiduciaries. A fiduciary is tasked with making decisions that prioritize the best interests of plan participants and beneficiaries, adhering to strict standards of care, trust, and compliance. What is the scope of a plan fiduciary’s duties? We explore here.

Fiduciaries: the basics

Managing a retirement plan goes beyond administrative duties; it requires a deep understanding of fiduciary obligations, as failure to comply can result in significant personal liability. Any individual or entity exercising discretion or control over a plan’s management or assets is deemed a fiduciary, regardless of their title. Fiduciaries often include trustees, investment advisers, members of the plan’s administrative committee, and those responsible for selecting these individuals. Their actions directly impact the security and success of the plan, underscoring the necessity of informed and prudent decision-making.

Fiduciary Obligations

Fiduciaries are subject to specific standards of conduct. They generally must:

• Act solely in the interest of plan participants and their beneficiaries and for the exclusive purpose of providing them benefits (also known as the duty of loyalty),
• Avoid conflicts of interest and ensure their actions do not benefit themselves, their employer, or other parties at the expense of the plan participant and beneficiaries,
• Carry out their duties prudently, including the monitoring of service providers and investment options,
• Follow the plan documents (unless inconsistent with ERISA),
• Diversify plan investments, and
• Pay only reasonable plan expenses.

With these responsibilities comes the possibility of liability when a fiduciary doesn’t live up to the standards of conduct.

What's at Stake if Fiduciaries Don't Comply with Their Responsibilities?

Failing to meet fiduciary standards can have serious consequences.

Fiduciaries who do not adhere to basic standards of conduct may face personal liability for:

• Restoring any losses the plan has suffered,
• Repaying any profits gained through improper use of the plan’s assets, and/or
• Under ERISA, Section 502(I) a civil penalties based on the “applicable recovery amount” may be imposed.

A fiduciary may also be held accountable for the actions of co-fiduciaries, including:

• Trustees,
• Investment advisers,
• Others who exercise discretion in administering the plan.

How can fiduciaries limit their liability?

Fiduciaries can take proactive steps to reduce their liability. For instance:

• They can document the processes they followed to show they have fulfilled their responsibilities properly.
• They should ensure that decisions (e.g., selecting service providers or investment options) undergo a formal review and approval process. Regular evaluations of the plan’s performance and service providers can reduce the risk of breaching fiduciary duties.

Fiduciaries can also delegate fiduciary duties to a third party, transferring liability for those specific functions to the third party. However, the fiduciary remains responsible for selecting and monitoring the third party.

Understanding and fulfilling fiduciary responsibilities is crucial for the success of any retirement plan. Failure to meet these obligations can lead to significant personal liability, but by staying informed and proactive, fiduciaries can protect both the plan and themselves. If you have any questions about your fiduciary duties or need guidance on your plan, please reach out. Let’s ensure your retirement plan is managed with the expertise and care it deserves.