Knowledge is Power

3 Questions ALL 401(k) Plan Administrators Should Ask

1. Who acts as fiduciary of a 401(k) plan?

An investment fiduciary is any person who is legally responsible for managing someone else’s money. Many of the actions involved in operating a plan make the person performing them a fiduciary. In fact, hiring a service provider makes YOU a fiduciary. Plan administrators assume significant legal responsibility when acting as fiduciary for a 401(k) plan. Most plan administrators have no idea they have accepted this liability.

This link to the US Department of Labor website explains the importance of hiring a professional fiduciary to manage your 401(k) plan:

2. What is the significance of being a fiduciary?

To meet their responsibilities as plan sponsors, employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for fiduciaries who manage an employee benefit plan and its assets.

Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include:

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them
  • Carrying out their duties prudently
  • Following the plan documents (unless inconsistent with ERISA);
  • Diversifying plan investments
  • Paying only reasonable plan expenses

The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment functions.

3. How can we limit our liability?

With fiduciary responsibility there is also potential liability. Fiduciaries who do not follow the standards of conduct outlined in ERISA may be PERSONALLY liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions. A plan sponsor can hire Rosman Asset Management, LLC to handle fiduciary functions and limit liability.

Limit Your Fiduciary Liability!