Fiduciary Responsibilities of the Retirement Planning Committee

School of Employer Plans

Fiduciary responsibilities of the retirement planning committee – image of a document with a pair of glasses and the words ‘fiduciary duty’

The fiduciary responsibilities of retirement plan sponsors are defined in The Employee Retirement Income Security Act (ERISA). Although it has been around for more than 40 years, numerous amendments to the act have kept it relevant. These fiduciary standards continue to be some of the highest that can be found in American law.

Take a moment to review this summary, so you can determine whether your organization is meeting the required fiduciary standards.

Duties of an ERISA Fiduciary

ERISA outlines four major duties of fiduciaries of a retirement plan committee:

1. Duty to Loyalty

ERISA fiduciaries must work in the best interest of the members and beneficiaries of the plan with the sole purpose of providing the plan’s benefits.

2. Duty to Act Prudently

Fiduciaries under ERISA must act thoroughly and with prudence. Acting with prudence requires that such fiduciaries carry out tasks in a similar matter of a knowledgeable person in the field. Consulting an expert in the respective field can assist in compliance with this duty.

3. Duty to Diversify Plan Assets

Any fiduciary involved in the management of the plan assets must ensure that there is proper diversification in order to minimize risk. Participants in plans like a 401(k) that allow personal choice must be given adequately diverse options for investment.

4. Duty to Act in Adherence to the Plan Document

The plan document, or the contract between plan sponsors and the participants, serves as an operating manual for a retirement plan committee and must be kept in compliance with ERISA.

All members of the retirement plan committee need not be experts in retirement planning or investment strategies. Instead they are experts in their own field, ready to serve the committee prudently and work towards reaching ERISA’s high standards.

Constructing an Effective Plan

An effective retirement plan does more than just outline the benefit structure. It may also contain day-to-day operations for specific members of the group and outline procedures for regular tasks such as bookkeeping and preparing documentation for plan participants. Assuming the retirement plan is compliant with ERISA, it’s contents must always be followed.

Another important aspect of the plan may be the outsourcing of some operations to service providers. Although the work is outsourced, the entire team, and especially the hiring manager, still maintain some fiduciary responsibilities. A prudent administrator would monitor all providers to ensure they achieve plan standards at a reasonable cost.

Fiduciary Obligation

It’s important to note that successors to past fiduciaries are not liable for breaches of fiduciary duties made by the predecessor. However, if such successor learns that such a breach has taken place, it is their fiduciary duty to remedy it.

On the other hand, it is completely reasonable to assume that a prudent individual would familiarize themselves with the operations of their predecessor. This means that responsibility could be placed on the replacement in cases where their lack of knowledge rose to the level of negligence.

High Fiduciary Standards Protect Us All

There’s good reason for high fiduciary standards when it comes to the management of a retirement plan. After all, the employees’ futures are literally in your hands.

By constructing an effective plan in accordance with ERISA, following the four fiduciary duties, and ensuring new team members validate compliance when entering a new fiduciary role, your organization will be on the right track to maintaining the trust of retirement plan participants.

Trending Articles

Weekly Economic Update presented by Meld University
Weekly Economic Update

School of Financial Wellness

Stocks slumped. The FOMC held interest rates steady and updated projections. Existing home sales and home builder confidence fell.

Wealth managers are key to your investment strategy.
5 Characteristics of a Quality Wealth Manager

School of Financial Wellness

Looking for a quality wealth manager? We pulled together our list of the 5 most important qualities to consider during your search.

A desk with a calculator, glasses, money and 3 blocks with IRA, 401k and ROTH written on them. These are meant to represent a guide to the many different kinds of retirement plans.
Retirement Accounts: A Comprehensive Guide

School of Saving and Investing

There are so many different types of retirement accounts, it can be difficult to keep track. This handy guide makes it easy.

Why Meld Financial?

Meld Financial, Inc. is an independent wealth management firm located in Birmingham, AL.

We specialize in financial planning, investment management, employee benefits and executive benefits for individuals, families, trusts, foundations and institutions.

We provide independent and objective services melded with customer-driven financial goals.

Mark McGarvey - Founder - Meld Financial

“We will always recommend the same course of action we would choose for ourselves, given the same circumstances.”

-Mark McGarvey, Founder