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“A fiduciary duty is the highest standard of care. The person who has a fiduciary duty is called the fiduciary, and the person to whom he owes the duty, is typically referred to as the principal or the beneficiary. If an individual breaches the fiduciary duties, he or she would need to account for the ill-gotten profit.”[1]

Today’s multi-faceted retirement plans contain an abundance of options for plan design, funding, and investments.  As employers wade through the options, make decisions, and monitor their retirement plans, their fiduciary responsibility is of utmost importance. 

As defined benefit pension plans have become a thing of the past, more and more people are relying on defined contribution plans, such as 401(k) plans, 457 Deferred Compensation Plans, and 403(b) plans to save for their future retirement needs.  Although the benefits of these plans are attractive, offering pre-tax contributions directly from payroll, and tax-deferred earnings, there are some potential risks involved in managing the investments in these plans.

Business owners and executives who act in a fiduciary capacity for their employer-sponsored plans may be held personally liable for improper selection and monitoring of the underlying funds in the retirement plan portfolio.  Not only do the funds need to meet certain criteria to remain compliant and acceptable for investment in a tax-favored retirement plan, but the line-up of funds must include an appropriate mix of various investment types and risk tolerance levels – they must be diversified.  In addition, employees must be properly educated about the plan options and benefits they receive.

It is very typical that the executives acting as fiduciaries for their company’s retirement plans have neither the time nor the expertise to properly monitor the plan assets, design, and underlying investments.  When this is the case it is wise to turn to financial professionals for advice and plan maintenance.

Many financial firms can reduce your liability by accepting the fiduciary role themselves.  This outsourcing of fiduciary responsibility has become more popular as tax laws are continually in flux, and the broad array of investment options becomes increasingly complex.  Employers fearing the implications of improper management of their company’s 401(k) plan are turning to professionals to alleviate this stress, and provide better service and guidance to the employees.

If you are currently acting in a fiduciary capacity for your company’s employer-sponsored retirement plan, ask yourself the following questions:

  • Have I reviewed the plan design at least annually to ensure that it meets the needs of the company and its employees?
  • Am I aware of the risk profile of each underlying investment option, and do I have a plan in place to continually monitor the performance and ratings of each fund?
  • Am I communicating with employees on a regular basis to ensure they understand the many facets of their plan (investment options, contribution limits, company match, tax treatment)?
  • Am I providing financial education to the employees so that they fully understand their retirement plan and other elements of retirement planning (Social Security, IRAs, rollovers)?

The ability to answer these questions with confidence is the first step in making sure you are managing your fiduciary responsibility appropriately.  If you have questions about fiduciary responsibility and wish to reduce your personal liability, speak to your advisor for details about retirement plan solutions.  Our Director of Retirement Plan Services, Bill Cannon, is available to review and design company retirement plans, he can be reached at 301-543-6000.

[1] https://www.law.cornell.edu/wex/fiduciary_duty