Thursday, August 1, 2013

Fiduciary Responsibilities: ERISA Standards of Conduct

  • Act solely in the interest of plan participants—This may seem obvious, but you cannot prioritize your board, president, or local community interests over the plan participants.
  • Act prudently—The duty to act prudently requires expertise in areas such as investment. Lacking that expertise, a fiduciary should hire someone with that professional knowledge. Fiduciaries are responsible for a decision process, not investment results. The process used to make decisions must be documented to show fiduciaries acted prudently. 
  • Capture more detail than you typically would when documenting an employee benefits-related decision as a fiduciary, . You do not just say, “The retirement plan committee reviewed the investment menu and the performance over the last six months and discussion ensued.” Instead, say something like, “There was a discussion about fund ABC, which almost but not quite met the watch list criteria that we set up in the investment policy statement and the committee decided to put the fund on the watch list. We’re going to review it in the next three months, particularly with an eye toward management turnover or style drift.” 
  • Follow the plan document—For example, if your employer contributions are being directed by the plan sponsor and the employee contributions are being directed by the plan participants, the plan document must provide for that. 
  • Periodically review the plan document to ensure named fiduciaries are accurate and in compliance with regulatory changes—The best practice is to make sure you have an internal expert responsible for knowing the plan document intimately. The expert should ask the tough questions of your service provider and your payroll department. 
  • Pay only reasonable plan expenses—Fiduciaries can determine if plan expenses are reasonable with a documented process of comparing their plans to relevant benchmarks. A request for information resulting in competitive quotes is a definitive method to determine if fees are reasonable. 
  • Offer a diversified set of investment options—People tend to think intuitively that more is better anytime people have to make a decision. However, studies show that as you add funds, utilization by plan participants actually decreases. When there are too many funds, people are likely to go into the default fund or defer making any decision on funds at all.
If you have any questions about fiduciary responsibilities or ERISA Standards of Conduct, or would like to begin talking to a retirement plan advisor, please get in touch by calling (855) 882-9177 or e-mail us at

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