How well are you meeting your FIDUCIARY duties?

Critical Concept: Liability is not determined by investment performance, but rather on whether prudent investment practices were followed.

Fiduciary360

As an investment steward, someone responsible for managing investments within a retirement plan, you are facing heightened scrutiny from plan participants, state and federal regulators. It is more important than ever for you to fully understand your responsibilities and fulfill your fiduciary duty. How effective is your plan management process? How do score yourself on this plan management evaluation .

Many investment stewards do not realize they are fiduciaries—and fewer still are truly aware of the full scope of their fiduciary duty. Some believe that they are meeting those requirements by implementing investment recommendations made by outside investment advisors. However, not all advisors are bound by the fundamental requirement of the fiduciary standard: to act solely in the best interests of and with undivided loyalty to the plan or fund and its beneficiaries.

What are the main responsibilities of a fiduciary?

A plan fiduciary must act solely in the interest of plan participants and beneficiaries.

In doing this, they must adhere to a set of standards and show documentation that these standards are being followed.

The Uniform Fiduciary Standards of Care are seven standards that are common to the three legislative acts that shape investment fiduciary standards. (The three legislative acts that shape investment fiduciary standards are: ERISA, UPIA, and MPERS.)

• Know standards, laws, and trust provisions
• Diversify assets to specific risk/return profile
• Prepare an investment policy statement
• Use “prudent experts” (money managers) and document due diligence
• Control and account for investment expenses
• Monitor the activities of “prudent experts”
• Avoid conflicts of interest and prohibited transactions

With the responsibility of overseeing participant’s retirement plan assets comes the fiduciary duty to not only select and monitor the plan’s investment options, but also to be informed about what regulatory standards must be adhered to and to document the fact that they are observing procedural prudence.

The fiduciary duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. Prudence focuses on the process for making decisions. Therefore, it is wise to document decisions and the basis for those decisions. We provide education and resources to help you understand the fiduciary responsibilities involved in managing a qualified plan, but you will document your plan’s fiduciary practices. We can provide you with a comprehensive Fiduciary Risk Management Toolkit to help guide and document the decisions on your plan and the steps you are taking toward meeting your fiduciary responsibilities.

James Brewer, MBA, CFP® is an Accredited Investment Fiduciary®. The Wall Street Journal features his approach to limiting sponsor risk through fiduciary outsourcing. Read more ›