Important tips on how to protect your fiduciary role

If you’re a retirement plan administrator, you need to know the roles and responsibilities of a fiduciary.

So what is a fiduciary? Are you one? Is your service provider the fiduciary? Are you both fiduciaries together? It is crucial to know your role in all of this.

First, let's start with a simple definition of fiduciary.

A fiduciary is a person or group of people that oversee and make decisions about the retirement plan for the benefit of the participants.

If you are the decision maker for the retirement plan, you are probably the fiduciary. If you are simply processing daily plan activities but do not have the authority to make plan decisions, you are probably not the fiduciary.

Now the next question is this—is the retirement plan company (what we call your service provider) a fiduciary in any sense? Your service provider may fit into one of three categories: 

1. No fiduciary responsibility at all

2. A co-fiduciary

3. A full-fiduciary

As an example, Envoy Advisory, Inc serves as a 3(21) co-fiduciary with many of the Plan Sponsors it supports.  

Carrying the “fiduciary role” can seem like a burden. Thankfully it’s not, as long as you follow the correct guidelines. There are many wise decisions that you can make to reduce your fiduciary risk. 

Some examples of fiduciary responsibilities are:

• Selecting your plan service providers

• Selecting plan investment options

• Monitoring plan investment options

• Following plan documents

When you have these elements in place, you will be taking the first steps in managing your fiduciary risks.

1. Be sure to have a diversified investment menu.
What does this mean if you're a fiduciary? Let me tell you a quick story.

There was an employee of an organization who sued his employers because he didn't have a conservative investment option available to him in his retirement plan. The market went down, he lost money, and he took that to the courts. Sure enough, the ruling concluded that the plan did not have a diversified enough investment menu.

So review your investment menu and make sure it is complete. Be sure to include a buy and hold mutual fund option as well as target dated funds, risk-based asset allocation funds, and for your less investment savvy employees, have available professionally managed accounts. One last option that will separate your plan from a secular plan is to be sure to include faith-based funds.

2. Make sure you provide proper disclosures to your participants.
These disclosures include a summary plan description, fee disclosures, and the investment detail.

3. Confirm that your organization has proper plan documentation.  
If the IRS or department of labor walks in your door, you're required to show them all of the elements and components of your plan. The best way to do this is to have all of your documents in one place. They include the following five documents.

1. The Board Resolution. This is what the board uses to authorize and adopt a plan.

2. The Plan Document and Adoption Agreement. This outlines all of the components of your plan.

3. The Summary Plan Description. This is the document that you hand out to employees that gives a summary of the whole plan.

4. The Investment Policy Statement. It provides the guidelines and parameters for your investment selection.

5. The Educational Policy Statement. This provides guidelines and parameters for your educational program.

Become familiar with these plan documents and make sure you are following them.

Do you want to know if you have a good retirement plan? Take this free, 2-minute assessment today.