Fiduci-what? Who Are Fiduciaries? 5 Basic Principles of Fiduciary Advisors

This post isn’t directed as something that the average person is probably interested in. It is truly intended for business owners and fiduciaries of retirement plans. If that is you (or you happen to be abnormally interested), read on. If it’s not you (and you aren’t abnormally interested), please pass this on to someone who might be a fiduciary of a retirement plan (business owners, HR representatives, payroll personnel, etc.).

If you are involved with retirement plans (401k’s, etc.) at your job, you have likely heard the word “fiduciary”. Depending on your situation, you may have a great understanding of what it means to be a fiduciary on a retirement plan or you may not. You might not even know whether or not you’re a fiduciary. Hopefully, this blog post will help answer some of your questions and, in turn, improve your Fiduciary Process.

Before we go any further, I think it’s important to establish who a fiduciary really is. (Unfortunately, you might be a fiduciary of your plan and not even realize it!)

According to ERISA, the plan sponsor is automatically considered a fiduciary. (Makes sense!) Other fiduciaries may include:

A person or group of people (administrative committee, investment committee, etc.) that is specifically named a fiduciary in the plan document.
Anyone with discretionary control over the administration of the retirement plan or the investments.
Anyone who renders investment advice to the plan or its participants for a fee.
Anyone explicitly named (by job title or name) in the plan document.

Now that we know who the fiduciaries are in the plan, let’s review the duties of each fiduciary. As they have important responsibilities with retirement plans, fiduciaries are subject to Standards of Conduct (as outlined in ERISA). They have this obligation because they act on behalf of plan participants and their beneficiaries. Any individual acting in that capacity are expected to follow five basic principles of Fiduciary Duty:

Prudence – Having a process in place for making fiduciary decisions.
Loyalty – Put the plan interest ahead of any personal interests.
Exclusive Purpose – Act solely in the best interest of plan participants & their beneficiaries.
Diversification – Diversifying plan investments and paying only reasonable expenses.
Adherence – Understand & follow the plan documents.

I know. This is a lot! I wish I could say that the above is all that you need to concern yourself with if you’re a plan fiduciary, but there is so much more. These are just the high-level aspects. We haven’t even touched on whether or not you should have your plan benchmarked and, if so, how often or how often you should do an RFP for your plan to make sure that your expenses on in-line for the size of your plan. Once you consider all of that, there is also making sure that your plan is successful…and what that success looks like for you. (That is for another blog post!)

If you have questions on whether or not your considered a fiduciary, want to review whether or not your meeting your fiduciary obligations or just want to get deeper into the weeds on this topic, give us a call to schedule a time we can come out and talk with you. (No cost or obligation.) We’re at (517) 887-9905.