If your business sponsors a 401(k) plan, you know there are complex compliance requirements. That’s one reason so many employers use service providers to help keep their retirement plans on the straight and narrow.

What you may not know is that no matter how many professionals you hire, you still may be a plan fiduciary. Operating a plan involves many actions that may make the person or entity performing them a fiduciary.

Fiduciary Responsibilities

The pension law (ERISA) sets standards of conduct for plan fiduciaries and outlines several important fiduciary duties. For example, fiduciaries are required to:

• Act solely in the interest of, and with the exclusive purpose of providing benefits to, plan participants and their beneficiaries
• Carry out their duties prudently
• Follow the plan documents (unless inconsistent with ERISA)
• Diversify plan investments
• Pay only reasonable plan expenses

In the News

A recent case* highlights what can happen when a 401(k) plan is mismanaged and participants sue the plan’s fiduciaries.

The court found the fiduciaries of a company’s two 401(k) plans liable — to the tune of $36.9 million — for losses to the plans due to breaches of fiduciary duty. Among other issues, the fiduciaries had failed to monitor plan fees. Excessive fees were paid (through a revenue sharing arrangement) to the plan’s investment advisor/recordkeeper in order to subsidize the recordkeeper for non-plan-related services provided to the company. In addition, the fiduciaries had selected more expensive investment share classes when less costly options were available, in violation of the plan’s investment policy statement. 

More About Liability

Fiduciaries should document the processes they follow to carry out their fiduciary responsibilities. Some service providers will assume fiduciary responsibility for certain functions. The employer is not off the hook, however, because the employer is still responsible for monitoring the providers.

^{* Ronald Tussey, et al. v. ABB, Inc., et al., DC — W.D. Missouri, 3/31/2012}