I’ve noticed that vendors who sell products to retirement plans are using the word “fiduciary” a lot lately. Some vendors that publicly acknowledge their fiduciary duty properly educate their clients that a plan sponsor’s liability is much greater than a vendor’s. A second group of vendors state falsely to their prospects and clients that they act as fiduciaries in place of plan sponsors. A third group of vendors proclaim loudly that they are not fiduciaries at all! How do plan sponsors make sense of this and what does it mean to them?
The Employment Retirement Income Security Act of 1974 (“ERISA”) defines a fiduciary to the extent that a person does any of the following:
- Exercises any discretionary authority or control over the management of a plan, or management or disposition of plan assets;
- Renders investment advice for a fee or other compensation, direct or indirect, over the disposition of plan assets, or has any authority or responsibility to do so; and
- Has any discretionary authority or discretionary responsibility in the administration of such plan.
It should be obvious from the above definition, more than one person or entity can be a fiduciary at any one time. Normally, plans have several different fiduciaries. These include both insiders, such as company officers and plan committee members, as well as outsiders such as registered investment professionals. Where it is unclear if a person is a fiduciary, the courts apply a functional test under ERISA. Persons in certain positions, however, such as the company employee who serves as the named fiduciary, trustee and plan administrator, are automatically considered fiduciaries. Their liability may be shared by others but it cannot be off-loaded!
Frequently, corporate employers are confused about their fiduciary responsibilities. Some believe that once they hire investment advisors and investment managers, they no longer have further fiduciary responsibilities. This is simply not true! The buck always stops with a plan sponsor’s key managers.
Another fallacy is the widespread belief that fiduciary duty focuses just on investment matters. Fiduciary duty under ERISA also involves many governance matters, claims administration, communicating with participants, as well as preparing required notices and disclosure to participants.
We hear from executives all over the country who are stunned to find that they are held legally liable to a set of fiduciary practices. By increasing numbers, they are outraged that no one has made them aware of how to fulfill these practices. They are learning that service providers are not on the hook for a plan sponsor’s fiduciary liability. As a result, many of your peers want clarity from a truly independent source and are calling for unbiased fiduciary training and tools to satisfy their duties.
Quoted below are the actual claims made in recently filed lawsuits against executives like you:
- Participants incurred unreasonable fees and expenses.
- Fiduciaries caused the retirement plan to enter into agreements with third parties that charged excessive fees.
- Fiduciaries failed to inform themselves, understand, and monitor the various methods by which providers received payment and other revenue sharing arrangements.
- Fiduciaries failed to establish, implement, and follow plan oversight procedures.
- Fiduciaries failed to oversee the performance of co-fiduciaries.
- Fiduciaries were not entitled to the safe harbor protections of ERISA section 404(c).
For more clarity on your fiduciary duties and how to determine your exposure to liability, you may request a complimentary white paper entitled “Improve Your Pension Governance – Learn Where You Stand”. Through the use of actual plan sponsor cases, the white paper demonstrates how Roland|Criss’ fiduciary governance system increases fiduciary protection on a before-and-after basis. Click here to request a copy of the white paper.
