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Fiduciary Fitness Part 1: Making sense of roles and responsibilities

Retirement Plans Plan Sponsors

Fiduciary duties can be confusing, and there are so many legal terms used that aren’t always intuitive. If you’ve asked any of the following questions, you are not alone. 

  • Who is the Plan Administrator?
  • Is the recordkeeper the Plan Administrator? 
  • What’s the difference between the Plan Administrator and the Plan Sponsor? 
  • When are you a fiduciary anyway?
  • How long are you supposed to keep documents?
  • Do you need to keep the file or should your advisor be doing that? 

Our goal is to help you begin to untangle this web and move toward a better process within your company.

Let’s start by first making sure you understand what it means to be a fiduciary and the general duties and responsibilities that are associated.

To simplify it, a fiduciary is any person who has the authority to make decisions or control any aspect of a qualified retirement plan. And the chief responsibility? To act in the best interest of plan participants. This is sometimes called the ‘Prudent Man’ rule.

It’s also important to understand that there are different classes of fiduciary. The first is a Named Fiduciary. A named fiduciary can appoint others to provide support and services to the plan. Most of time, the Named Fiduciary is also the Plan Sponsor, and is generally listed as the Employer.

Quick Tip:  Your plan document likely defines the Named Fiduciary and the Plan Sponsor. 

So what does that mean?  If your employer is the “Named Fiduciary” does that mean you are off the hook and that your plan just doesn’t have a fiduciary?  No.  There is also such a thing as a “Functional Fiduciary.”

A Functional Fiduciary is sort of the catch-all created by ERISA to make sure there are responsible parties. Functional Fiduciaries are a really broad spectrum of authority, so it really comes down to who has the power to make decisions for the plan. Many providers will have an “Authorized Plan Signer” that can sign legal documents like plan documents, amendments, contracts, etc.

The questions to ask yourself are: Can you make binding decisions about the plan? Can you sign documents on behalf of the plan? Can you select service providers to assist you with the plan? If the answer to any of these is “yes,” Congratulations – you are a fiduciary!

Now that we’ve sorted through the very basic fiduciary role, it’s time to expand your knowledge!

A Functional or Named Fiduciary can delegate responsibilities within their organization, including delegating fiduciary and non-fiduciary tasks. For example, submitting contributions and loan repayments, and collecting enrollment or beneficiary forms are not fiduciary tasks. Serving on an investment committee or plan committee that makes decisions for the plan could be a fiduciary task. Your role on the committee will determine whether it’s fiduciary in nature. Is your role to provide input only or do you have a vote? If you have a vote, you likely are a fiduciary.

So what is the “Prudent Man” thing to do now that you understand the basics of a fiduciary? Formalize it! Develop by-laws or a charter that outlines the responsibilities of the committees that your company has formed. Charters can do things like document the roles of those serving on committees, how long they should serve, what qualifications they might have, how frequently to meet, etc. This will provide clear documentation of the processes you’ve followed when it comes to your committee.

Once you’ve documented your committee, be sure to review those charters periodically and as things change to make sure you keep it up-to-date.  Keep a copy of the charters you adopt in your Fiduciary File.

Quick Tip:  Once you’ve created the Charter, it’s easy to forget about it. It may be a good idea to build a reminder for yourself or your committee to review it annually

Need help? Our advisors have sample by-laws and charters for you to take a look at.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations