Fiduciary Responsibility in a 401(k) Plan 

“Fiduciary: of, relating to, or involving a confidence or trust: as a: held or founded in trust or confidence b: holding in trust c: depending on public confidence for value or currency…”                                                                                                                                                                                                 Merriam-Webster’s Online Dictionary

The Fiduciary Rules!

My position requires me to act in the best interest of plan participants. I am one of the fiduciaries of our 401(k) plan.  In my case, it was more of a choice than anything else.  My position already requires me to act in the best interest of plan participants, and since that’s the primary responsibility of a fiduciary, I figured why not?

Some people, and even some companies, are scared to be a fiduciary.  It has an ominous sound to it, especially when it’s paired with “responsibility.”  The term “Fiduciary Responsibility” sounds like something that you’ll get in trouble for, eventually. 

I know a great many service providers such as Third Party Administrators, brokers, attorneys, accountants, advisors, and even banks and trustees who go to great and elaborate lengths to avoid fiduciary roles. Much training of employees goes into showing them how to avoid becoming a fiduciary, for this reason: a fiduciary is someone named as a fiduciary and someone who also executes a fiduciary act.

Every 401(k) plan must have at least one-named fiduciary. 

These individuals are responsible for ensuring that the plan is run the right way.  There are many rules that say what the right way is, but they boil down to what I said earlier: The right way is running the plan in the best interest of the participants.

In addition to the named fiduciaries, some individuals or companies can become functional fiduciaries, meaning they perform functions limited solely to a fiduciary.  Functional fiduciary roles can apply to anyone who (1) has discretionary control over plan assets; or who (2) renders investment advice for a fee.

For example, if you authorize paying Mr. Jones his account balance out of the plan, you are a fiduciary, whether you wanted to be or not.  Likewise, if I receive $20 for telling you that fund XYZ is the right place for your money, then I become a fiduciary.

This functional definition causes much of the fiduciary fear.  Service providers go to extremes to avoid meeting the fiduciary definition.  They’ll tell you that a particular transaction looks good or bad, but they’ll also be quick to tell you that it’s your decision to make.  Doing that takes them off the hook for making the decision.

Why are they scared to be a fiduciary? 

Fiduciaries can get sued.  A plan participant with a grievance about the plan, real or imagined, may look to sue everyone in sight, and fiduciaries have a target on their backs for a lawsuit.  A service provider will claim that he didn’t make the decision, so he’s not responsible; and, “Therefore, ‘Your Honor,’ the case against my client should be dismissed.”

But, ask yourself this: If your provider will not stand beside you when there’s a problem, is that the provider you want?

I’m aware that I have a serious responsibility as a fiduciary.  After all, keeping up with thousands of participants and over a billion bucks is a lot of responsibility.  But I guess I look at it this way: If what I do everyday is in the best interest of participants, what have I got to be worried about?

I am one of the fiduciaries of our 401(k) plan. Every 401(k) plan must have at least one-named fiduciary. These individuals are responsible for ensuring that the plan is run the right way.