How Does a Retirement Plan Fiduciary Reduce Their Risk?

By Todd Hughes, J.D. – Vice President & Retirement Services Officer

If you are reading the third installment of our fiduciary blog series, you know who a retirement plan fiduciary is and you also know that plan fiduciaries are personally liable for their actions in relation to the retirement plans they administer.  Now, the question remains – “How does a fiduciary reduce their risk?”

There are three things retirement plan fiduciaries should implement and follow to reduce their risk:

• First, make sure there is a documented process for how the plan is to be administered and monitored. How are the service provider’s fees and services benchmarked? How are the investments monitored? Is there an investment policy statement? Are regular fiduciary meetings held with minutes kept from those meetings?  If you can demonstrate through a thoughtful and deliberate process how a decision was made, many times that decision will be found to be prudent.
• Second, delegate the plan administrative and oversight duties to appropriate internal employees. There should be a person or two that is responsible for the day-to-day administration of the plan. They should have processes in place on how the plan is administered, such as contribution uploads or loan requests. Separately, there should be a committee appointed to oversee the plan.  This committee should meet at least annually, or as often as quarterly, depending on the size of the plan.  Among other things, it is their job to make sure the plan is in compliance, the fees are reasonable and the investments are performing.  Again, these meetings should be documented as part of an ongoing process.  Committee members should receive ongoing training as part of their role as a plan fiduciary.   Additionally, it is also generally recommended for the plan sponsor to purchase fiduciary insurance as additional protection for the individuals on the committee
• Third, as the Department of Labor has stated on numerous occasions: if you are not an expert, you should hire an expert. A lack of industry knowledge is not a defense against claims of imprudence, so a fiduciary must either gain the necessary knowledge or hire an expert who has the knowledge.  When hiring an expert it is vital to understand the different services being provided and the fiduciary status of the party being hired.

There are two general categories of retirement plan service providers: Recordkeepers and Plan Advisors/Brokers.  Most of the time Recordkeepers are not serving in a fiduciary capacity when they are providing the services of custodian, website provider, compliance, etc.  Plan Advisors/Brokers, however, can and (in my opinion) should be hired in a fiduciary capacity.  They should either serve as a co-fiduciary with respect to the investment choices or as an investment “manager,” taking on full responsibility for the investment choices.  They should also assist the committee with the monitoring of the Recordkeeper to ensure their fees and services are reasonable.

In summary, to minimize risk and liability – a committee should be appointed, a retirement plan expert or fiduciary should be hired, and a process should be put in place for all things plan-related, including monitoring the plan’s providers.