By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC
Recently the Department of Labor shared a proposed set of regulations about retirement plan fiduciary responsibility. As a result, many 401k plan sponsors have begun asking questions about their fiduciary responsibility. Following are the most frequent questions that I hear:
1. Am I a fiduciary?
A 401k plan sponsor is always a fiduciary and can never climb out of the fiduciary boat. As a general rule, anyone employed by a plan sponsor who acts in a fiduciary role with respect to the retirement plan is a plan fiduciary. Acting in a fiduciary role generally means that an individual may exercise discretion with regard to the plan. As a result, typically every member of the Investment Committee is a fiduciary as well as anyone who exercises discretion in relation to your 401(k) plan.
2. My boss appointed me to our plan’s Investment Committee even though I don’t have time to serve in this role. Am I a fiduciary?
Not only are you a fiduciary, but so is your boss. Anyone who has the ability to appoint a fiduciary is a fiduciary. Although you may not have time to serve, that does not impact your status as a fiduciary. Oh, and not attending Investment Committee meetings will not absolve you of your fiduciary responsibility either. Nor will resigning from the Investment Committee without finding a replacement.
3. Is our investment advisor a fiduciary? How would I know?
Currently, it is very unusual for an investment advisor not to be a fiduciary to the 401k plans he/she works with. However, it is possible. Look in the contract you signed with your advisor. If he/she is a fiduciary there will be language stating that he/she is an ERISA Section 3(38) or 3(21) fiduciary. If you have difficulty finding that sort of language, call your advisor and ask. If your advisor is not a fiduciary, you should seriously think about hiring a different advisor.
4. I know my investment advisor is a fiduciary. That means that I don’t have to be one, right?
As mentioned previously, a plan sponsor can never offload its fiduciary responsibility. However, plan sponsors can welcome more fiduciaries into the fiduciary boat. This is a good thing since the more fiduciaries in the boat, the more parties are available to absorb financial responsibility in the event of a breach.
5. Our plan’s recordkeeper has to be a fiduciary, right? Our plan attorney should be one as well since he is always telling us what to do with the plan.
Neither your plan’s recordkeeper or attorney are likely to be fiduciaries since they do not have discretionary authority. Your plan’s custodian, accountant, payroll vendor and any consultants are probably not fiduciaries either.
6. If an investment fund that the Investment Committee chose to offer loses money, are the fiduciaries liable for the loss?
Provided everyone on the Investment Committee acted prudently when choosing and monitoring the fund, the answer would be no. Fiduciaries are not responsible for insuring investment option performance.
7. Some of the prior fiduciaries to our 401k plan don’t seem to have done a good job choosing investment funds. Could we be liable, even though we weren’t involved in selecting those funds?
Possibly. If proper due diligence was not exercised in choosing an investment option by prior fiduciaries, existing fiduciaries are not exempt from responsibility/liability if they decide to continue to offer the fund.
8. We just always do what our investment advisor tells us to do. As a result, there is no way we could be liable for any fiduciary breach, right?
Wrong. Although you are not expected to have the knowledge of an expert, failing to exercise proper due diligence when reviewing a recommendation made by an expert may lead to liability, in the event of a breach.
9. Is there any way to manage fiduciary responsibility risk and the associated liability?
Yes, many. Your employer should have fiduciary liability insurance and your plan should also have an ERISA fidelity bond. You can contract for co-fiduciary services and elect to comply with a number of the safe harbors the regulations offer (e.g.; Section 404(c) compliance).
Have other questions regarding fiduciary responsibility? If so, let me know and I will do my best to share an answer with you.
About the Author
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or email@example.com.
About Lawton Retirement Plan Consultants, LLC
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or firstname.lastname@example.org or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.