Plan Fiduciary

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 11, 2023

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Definition of Plan Fiduciary

A plan fiduciary is an individual or entity responsible for managing a retirement plan in the best interests of its participants.

This includes making investment decisions, selecting and monitoring service providers, and ensuring that fees and expenses are reasonable.

Fiduciaries must act with care, prudence, and diligence and avoid conflicts of interest that could harm the plan or its participants. Their ultimate goal is to ensure that the plan is managed in a way that maximizes retirement benefits for plan participants.

Types of Plan Fiduciaries

There are several types of plan fiduciaries, each with its own set of responsibilities and expertise.

Types of Plan Fiduciaries

Investment Managers

Investment managers are responsible for making investment decisions on behalf of the plan. They are required to act prudently and in the best interest of the plan participants.

Plan Administrators

Plan administrators oversee the day-to-day operations of the plan, including enrollment, record-keeping, and compliance with relevant regulations.

Plan Trustees

Trustees are responsible for managing the assets of the plan and ensuring that they are invested according to the plan's investment policy statement.

Plan Sponsors

Plan sponsors are typically the employers who establish and maintain the retirement plan for their employees. They have a fiduciary duty to ensure that the plan is managed in the best interest of the participants.

Financial Advisors

Financial advisors may provide investment advice and guidance to plan participants, helping them make informed decisions about their retirement savings.

Legal and Regulatory Framework for Plan Fiduciaries

Plan fiduciaries are subject to various legal and regulatory requirements that govern their conduct and responsibilities.

Employee Retirement Income Security Act (ERISA)

ERISA is a federal law that sets minimum standards for retirement and health plans in private industry. It requires fiduciaries to act prudently and in the best interest of plan participants.

Department of Labor (DOL) Regulations

The DOL is responsible for enforcing ERISA and has issued regulations that provide guidance on the responsibilities of plan fiduciaries.

Internal Revenue Service (IRS) Guidelines

The IRS provides guidance on the tax aspects of retirement plans, including the treatment of contributions, distributions, and plan loans.

Securities and Exchange Commission (SEC) Rules

The SEC regulates the securities industry, including investment advisors and broker-dealers, who may be involved in providing services to retirement plans.

Fiduciary Duties and Responsibilities

Plan fiduciaries have several key duties and responsibilities, which include:

Plan Fiduciary Duties and Responsibilities

Duty of Loyalty

Fiduciaries must act solely in the interest of plan participants and their beneficiaries, putting their interests above any other considerations.

Duty of Prudence

Fiduciaries are required to act with care, skill, prudence, and diligence in carrying out their responsibilities.

Duty to Diversify Investments

Fiduciaries must ensure that the plan's investments are diversified to minimize the risk of large losses.

Duty to Monitor and Review Plan Performance

Fiduciaries must regularly monitor and review the performance of the plan, including its investment options and service providers.

Duty to Disclose Information

Fiduciaries have a duty to provide plan participants with the information they need to make informed decisions about their retirement savings.

Duty to Avoid Conflicts of Interest

Fiduciaries must avoid conflicts of interest and act independently when making decisions on behalf of the plan.

Best Practices for Plan Fiduciaries

To effectively fulfill their responsibilities, plan fiduciaries should adopt the following best practices:

Best Practices for Plan Fiduciaries

Implementing a Well-Documented Investment Policy Statement (IPS)

A clear and comprehensive IPS provides guidance on the plan's investment objectives, risk tolerance, and asset allocation strategy.

Regularly Reviewing Plan Performance and Fees

Fiduciaries should conduct periodic reviews of the plan's investment performance and fees to ensure that they remain competitive and in line with the plan's objectives.

Conducting Annual Plan Reviews and Participant Education

Annual plan reviews can help identify areas for improvement and ensure that the plan remains compliant with regulations. Providing ongoing education for plan participants is also crucial in helping them make informed decisions about their retirement savings.

Ensuring Transparency and Clear Communication

Fiduciaries must maintain open lines of communication with plan participants and provide them with accurate, timely, and relevant information about their retirement plan.

Engaging Qualified Professionals to Support Plan Management

Hiring experienced professionals, such as investment advisors, attorneys, and third-party administrators, can help fiduciaries manage their responsibilities and mitigate risks more effectively.

Managing Fiduciary Risks

Fiduciaries should take proactive steps to minimize potential risks associated with their role:

Managing Fiduciary Risks
  • Fiduciary Liability Insurance: Obtaining fiduciary liability insurance can help protect fiduciaries from financial losses arising from claims related to the management of the retirement plan.

  • Documenting Decisions and Processes: Maintaining thorough documentation of all decisions and processes related to the plan can help demonstrate that fiduciaries have acted prudently and in the best interest of the participants.

  • Staying Updated on Regulatory Changes: Fiduciaries should stay informed about changes in laws and regulations that may impact their responsibilities and the management of the retirement plan.

  • Conducting Regular Fiduciary Training: Ongoing fiduciary training can help ensure that fiduciaries understand their duties and stay current with best practices in plan management.

  • Engaging External Experts for Independent Reviews: Seeking input from external experts can provide valuable insights into potential areas for improvement and help fiduciaries maintain a high standard of care.

Consequences of Fiduciary Breaches

Fiduciary breaches can have severe consequences, including:

  • Legal and Financial Ramifications: Fiduciaries may be held personally liable for losses resulting from their breaches and may face civil penalties or even criminal charges.

  • Impact on Plan Participants: Breaches of fiduciary duty can lead to reduced retirement savings and financial security for plan participants.

  • Reputational Damage: Fiduciary breaches can cause significant reputational harm to the fiduciary and the organization they represent, potentially impacting the organization's ability to attract and retain employees.

  • Remedies and Corrective Actions: In the event of a fiduciary breach, appropriate corrective actions must be taken to remedy the situation and prevent future occurrences.

Final Thoughts

Plan fiduciaries play a crucial role in managing retirement and investment plans, acting in the best interests of plan participants.

With various types of fiduciaries, each has specific responsibilities related to the management and oversight of the plans.

Legal and regulatory frameworks, such as ERISA, DOL regulations, IRS guidelines, and SEC rules govern them. Fiduciaries must adhere to key duties, including loyalty, prudence, diversification, monitoring, disclosure, and avoiding conflicts of interest.

By adopting best practices, engaging qualified professionals, and staying informed about regulatory changes, fiduciaries can effectively manage their responsibilities and minimize risks.

It is essential to understand the potential consequences of fiduciary breaches and take corrective actions to ensure the financial well-being of plan participants.

By learning from case studies and examples, fiduciaries can enhance their compliance and contribute to securing the financial future of the individuals they serve.

Plan Fiduciary FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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