Fiduciary Duties

Although sponsoring a 401(k) plan is often done with the best of intentions, there are certain responsibilities that every employer needs to be aware of and actively manage when doing so. In fact, the fiduciary responsibilities within an employee retirement savings plan carry a higher standard of care than other employee benefit programs.

The Employee Retirement Income Security Act of 1974 (ERISA) sets forth five areas of fiduciary responsibility associated with employer-sponsored retirement savings plans:

1. Duty of Loyalty – To act solely in the best interests of the plan, its plan participants and their beneficiaries; otherwise known as the exclusive benefits rule.

2. Duty of Care – To monitor and defray costs born by the plan, including the reasonableness of the fees paid for benefits delivered – keeping in line with the “exclusive benefits rule”.

3. Duty of Prudence – To supply a broad range of investment alternatives that enable participants to create an investment portfolio tailored to their personal needs, including the minimization of risk for the potential of large investment losses to the plan.

4. Duty of Diligence – To follow the plan documents in the ongoing management of the plan and the benefits afforded therein, including the avoidance of “prohibited transactions” between parties of interest.

5. Duty of Skill – To diversify the plan’s assets among a variety of investment alternatives and perform periodic reviews of the investment options made available within the plan, by following a prudent documented process.

It is generally accepted that the primary role of a fiduciary is to manage the plan within the rules issued under ERISA, and in compliance with the plan’s documents and instruments.