Most Plan Sponsors don’t consider themselves Fiduciaries

A key contributor to the challenging nature of plan management for smaller-plan sponsors is the fact that most of them don’t consider themselves plan fiduciaries. This strongly suggests that they aren’t sufficiently aware of the important responsibilities that fiduciaries have.

What Is A Fiduciary?

In the pension world, “fiduciary” is a very specific legal term that is defined in the Employee Retirement Income Security Act of 1974, the landmark pension law best known by it’s acronym ERISA. It’s a serious job that should be taken very seriously by those who have it.

ERISA defines a fiduciary as someone who has discretionary authority or control over a pension plan, whether with regard to the plan’s administration or assets. While ERISA requires each plan to designate a specific fiduciary (often the company’s CEO or committee appointed to manage the plan), other can be considered fiduciaries as well.

Perhaps the most important fiduciary responsibility is the selection and oversight of the plan investment options. Other key responsibilities include the interpretation of a plan’s provisions as stated in the official plan documents, and the selection of the service providers such as record keepers, third party administrators, investment managers, participant advice providers and participant educators.

ERISA’s fiduciary provisions are intended to protect plans from misuse of assets. Under the law retirement plans aren’t extensions of a corporation; instead, they’re entirely separate entities, holding assets in trust. Fiduciaries must manage them solely in the interests of their participants and beneficiaries. Addiotnally, fiduciaries are required to avoid conflicts of interest; see to it that the plan pays only reasonable fees; and diversify the plan’s investments in order to minimize the risk of large losses.

ERISA states that a fiduciary must perform his/her plan duties “with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

Translation: Fiduciaries must conduct themselves in the same way as prudent experts would conduct themselves.

Failure to perform their duties under ERISA exposes fiduciaries to potentially heavy personal legal liability. Fiduciaries that don’t meet the law’s standards can lose their cars, savings and any other assets.