Who is a retirement plan fiduciary?

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By Kimberly DeMenge, JD, CIP, QKA

What does it mean to be a fiduciary of a plan?

Under ERISA, a plan fiduciary has a strict standard of care with which they must act. A plan fiduciary must act exclusively for the benefit and in the best interest of the plan participants and beneficiaries—the exclusive benefit rule. Additionally, a plan fiduciary must act as a prudent man would. Again, this is a strict standard which requires an individual to make decisions that a prudent expert acting under the same or similar circumstances would make. A fiduciary must diversify plan investments to minimize potential loss. And last, a fiduciary must adhere to the written plan document provisions.

Who are fiduciaries of the plan?

A plan can have multiple fiduciaries. Under ERISA 3(21)(A), a fiduciary is anyone who

  • exercises discretionary control over management of the plan or control over plan assets (e.g., the employer, plan administrator, investment manager);
  • receives a fee for giving investment advice related to plan assets (e.g., broker-dealer or insurance agent); or
  • has discretionary authority in the administration of the plan (e.g., employer, plan administrator, plan committee). 

There are other definitions under ERISA that further define additional fiduciaries, such as ERISA 3(38) which defines an investment manager as a fiduciary. This is someone who

  • has the power to manage, acquire, or dispose of any plan asset;
  • is a registered investment advisor under the Investor Advisor Act of 1940; and
  • has acknowledged in writing that he is a plan fiduciary. 

Another section defines administrator

  • as the person specifically designated by the terms of the plan document;
  • as plan sponsor; or
  • when an administrator is not designated and cannot be identified, the person the Department of Labor may by regulation prescribe (see ERISA Section 3(16)).

However, just because an individual may not fit the definition of an ERISA 3(38) or 3(16) fiduciary, that does not necessarily mean they are not a plan fiduciary.

Must a fiduciary tell participants that he is fiduciary?

Some fiduciaries must be named in the Summary Plan Description. This would include the employer, the plan administrator, and the trustee. Additionally, for plans that permit participants to direct investments, the plan must provide a fee disclosure to plan participants and beneficiaries to help them make informed decisions regarding their investment direction. This is a requirement that the plan administrator must communicate to participants. However, many service providers will prepare fee disclosures for the employer to utilize. There is also a requirement that service providers provide their fee information to the employer so that the employer may determine if plan expenses are reasonable.