Fiduciary Reference Guide for Corporate Retirement Plans

Fiduciary Duties & Investment Line-Up Management

Generally, an ERISA fiduciary is anyone who exercises discretionary authority or control over a plan, its assets, provisions, or who gives investment advice to the plan or its participants. This includes the plan sponsor and may include some of your co-workers, such as members of the plan's benefits committee, as well as your plan’s financial professional. It is vital that all plan fiduciaries understand and fulfill their roles as an ERISA fiduciary. 

Duty to act for the 

exclusive purpose

 of

providing benefits and paying the reasonable expenses of the retirement plan.  

• Fiduciaries must act solely in the interest of participants and beneficiaries. 

Duty to be a 

prudent expert

 (the prudent man rule).  

• Fiduciaries must be more than well intentioned; they must perform their duties with care, skill, prudence, and diligence in each area in which they make decisions for the plan.

Duty to 

monitor

.  

• The fiduciary is under continuing duty to monitor the performance of all service providers and investment options. 

Duty to 

disclose

.  

• The plan administrator is responsible for providing employees with various disclosures, such as a summary plan description, quarterly benefit statement, investment information, and ERISA Section 404a-5 notifications. 

Duty to 

act in accordance with the retirement plan document

.  

• Fiduciaries must strictly follow the terms of the documents governing the plan unless they are inconsistent with ERISA. 

Duty to 

avoid engaging in prohibited transactions

.  

• Fiduciaries must avoid causing the plan to engage in transactions with parties in interest and must also avoid transactions that involve self-dealing or conflicts of interest unless an exemption applies. 

Duty to 

diversify retirement plan investments

.  

• For participant-directed plans, such as 401(k) plans, this duty generally doesn't apply to the investments that are directed by the participant, although to comply with ERISA Section 404(c), the plan sponsor must still offer employees a broad range of investment alternatives. 

Investment Line-Up Management

There’s a lot of factors to balance when you are choosing the investments for your 401(k) or 403(b) investment lineup. Your investment strategy should strike the right balance of simplicity and diversification, as well as active and passive management. And the plan’s investment offerings and QDIA will depend on your participants’ goals, level of investment knowledge, and need for assistance with investing.

Follow a written investment policy statement (IPS)

Every IPS should contain: Your plan’s investment objective; Individual roles and responsibilities; Investment selection and monitoring criteria; Participant education and communication.  And remember to follow the IPS and document your decisions in the form of meeting notes, to prove that you followed a prudent process.  

Pick investments purposefully

To comply with ERISA Section 404(c), the plan must offer a broad range of investment options that:

• Are diversified, such as mutual funds that own many securities,

• Have materially different risk and return characteristics,

• Allow participants to diversify

• Minimize participant investment risk by adding greater diversification.  

Consider including passive and active funds

Passive and active management can both play a role in a diversified portfolio, serving different purposes and appealing to different investors. 

Consider lowest-net-cost investments

Consider using 

 share classes, no matter how you pay for recordkeeping expenses.

Make sure fees are reasonable

Generally, under ERISA, reasonable fees mean that they are in line with going market rates. With investments, an accepted way to determine whether fees are reasonable is to benchmark them.

Select your default fund carefully

To obtain fiduciary relief, most 401(k) plans offer a qualified default investment alternative (QDIA). By law, a QDIA must be A target-date fund (TDF), An asset allocation or balanced fund, or a professionally managed account.