The Five W’s of Being a Fiduciary

By • on March 10, 2011 • Filed under: Articles of Interest, Plan Sponsors


The Role of Fiduciary in Retirement Plans

Webster’s defined the word “fiduciary” as: –noun – Law . a person to whom property or power is entrusted for the benefit of another

When thinking about your plan you should know the 5 W’s: Who is a fiduciary? What is the significance? When are they acting in that role? Where does the definition apply? Why is this garnering so much attention lately?

Who is a Fiduciary?

The short answer is: Persons with discretion over the interests, investments, document provisions, and administrative responsibilities of a retirement plan are generally considered to be fiduciaries to the plan. Discretion is a key determination factor to who is or who is not a fiduciary.

Every retirement plan has at least one named fiduciary, usually written in to the plan documents, but others may be a fiduciary based on their role with the retirement plan. This will usually include, but is not limited to, trustees of the plan, individuals who have discretionary control over certain aspects of the plan, investment advisers to the plan, and members of a plan’s administrative committee (if one is established).

Also included are Registered Investment Advisory firms offering advice to individuals relating to their investments – keep in mind, though, that this advice must be specific to each individual, however general the advice may seem. A consultant educating participants on how bonds work may not be considered a fiduciary because that is not individualized advice. NEW GUIDANCE: The IRS now requires Registered Investment Advisors who are considered fiduciaries to disclose, in writing, that they are a named fiduciary to the plan; non-fiduciaries may not make this claim.

Who is not a Fiduciary?

The Co-Fiduciary term has been thrown around a lot in the retirement plan industry; companies claiming that they are co-fiduciaries as a sales pitch may have limited fiduciary liability. The problem is, they’re only limited in their liability, essentially defeating the purpose of being called a “fiduciary.”

Rank-and-file employees who are designated with certain administrative duties within the plan are generally not fiduciary to the plan. Being charged with collecting & submitting enrollment forms, processing salary deferrals, etc. are not considered discretionary duties (discretion is the key, here). Their role mainly involves administering the plan as designated by fiduciaries, such as withholding amounts as designated by employees, or making matching contributions according to the plan document established by the trustee.

What is the significance?

So, now that you have a better idea of who is a fiduciary, it’s time to figure out what it means.

Being a fiduciary, your main objective is to always act in the best interest of those who have entrusted you with that role. “Those” are the participants of the retirement plan. The “entrustment” lies in how you have designed the plan, the investment options you have provided, and the role of insuring that the plan is being properly administered.

Plan administrators and sponsors who are named fiduciaries are responsible for all aspects surrounding the retirement plan – from maintaining the plan’s compliance, to providing appropriate investment options for the participants.

Your responsibility is to make sure the investment selections have a relatively low cost, relatively similar returns compared to benchmarks, and are accessible by participants (no, or low, investment minimums).

Your responsibility is also to insure the plan is being administered properly. You may have delegated the role of funding the accounts to an employee, but it’s your role to make sure that employee is actually doing so.

When & Where do the fiduciary responsibilities have to be met?

If you’re a named fiduciary to the plan, or meet any of the guidelines established by the IRS defining a fiduciary, then you’re a fiduciary until that role has been revoked.

One key reminder: If you’re a trustee of a retirement plan, and you no longer are employed by the plan sponsor, make sure you are removed as a trustee of the plan! Part of your responsibilities as a trustee/fiduciary to the plan is to insure the plan documents are up-to-date. You don’t want to find out five years after you’ve left that you still have some responsibilities with respect to the retirement plan.

This responsibility doesn’t end when you leave work at the end of the day. If you are providing advice to plan participants, making decisions regarding the plan, or acting in any other fiduciary capacity at any time during your role as a fiduciary then you are acting as a fiduciary and can be liable for those decisions.

Why is this garnering so much attention lately?

The “Great Recession.” When the market went headfirst into the deep-end, participants across our country began losing money at a rapid clip. The indices were down about 40%, and some people were lucky enough to lose ‘only’ 15%, but some of the more unfortunate ones lost 50, 60, 70% or more!

How could someone lose so much more money than the stock market? Bad investment options are one key factor. With 401(k)s, fiduciaries are usually forced to narrow about 100 funds to a list of 10-20 funds; sometimes only within one fund family, or one share class. Some lawsuits were probably directed towards a fiduciary who thought he or she was picking a great group of funds. The problem is, those funds might have been great when they picked them in 1999, but they weren’t suited for today’s global market.

Plan participants need someone to look out for them. They’re usually not part of the decision-making process for selecting a third-party service provider; nor are they usually a part of the investment selection process. All they see is their statements, and assume that the fiduciaries of the plan are meeting their responsibilities.

Where to get more information:

A free plan review can be provided by the associates of Reviews include a comparison of mutual funds that your provider allows versus a list of thousands of no-load mutual funds. Breakdowns can include return, expense ratio, and rating of the fund. Visit them online at for more information.

Articles on this site are for guidance only. No intention, however phrased, to offer investment recommendations or tax advice is intended, should be inferred, or acted upon by the reader without due diligence. No guarantee of the accuracy of the content is given or inferred. It is our recommendation and the responsibility of readers that they make their own further independent investigations before making any investment decisions.

Visit to learn more about fiduciary responsibilities and other 401k topics.

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