If you make decisions that impact your organization’s retirement plan, you’re probably a fiduciary as defined by the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA governs private workplace retirement plans and protects retirement plan assets by setting standards for people like the plan’s trustees, administrators, and members of its investment committee.
How do you become a fiduciary?
There are a few ways to become a fiduciary for your organization’s retirement plan.
- Named fiduciaries control plan operations and administration, including investments. ERISA requires that every plan has one or more named fiduciaries. You may be listed as an individual or as part of a group or committee within the plan document.
- Functional fiduciaries exercise discretionary control, authority, or responsibility over plan management, plan assets, or plan administration. Or they provide investment advice for a fee.
- Accidental fiduciaries take action that crosses a line into fiduciary status. If you’re not supposed to act as a fiduciary, you need to understand what is and isn’t included in your role.
Not everyone who interacts with the plan is considered a fiduciary. For example, accountants, recordkeepers, attorneys, consultants, and employees who perform administrative functions within a framework of policies aren’t ordinarily considered fiduciaries.
What rules do fiduciaries need to follow?
As a fiduciary, you need to operate the retirement plan in the interest of its participants. ERISA outlines a standard of conduct for you to follow.
- Exclusive benefit rule: You must act for the exclusive purpose of providing benefits and paying only reasonable plan fees.
- Prudent person rule: You must perform your duties with care, skill, and diligence that would be exercised by a prudent person familiar with the matter and acting under similar circumstances. When it comes to investment selection, this is sometimes called a prudent expert rule because fiduciaries are measured by the standard of a knowledgeable investor.
- Diversification rule: You must diversify the plan’s investment options to minimize the risk of investment loss.
- Duty to follow plan terms: You must act in accordance to the terms of the plan documents and ERISA rules.
If you don’t comply with ERISA, you can face personal liabilities and penalties. That’s why it’s important to have and follow documented processes.
3 tips for retirement plan fiduciaries
- Understand your responsibilities. This fiduciary management handbook (PDF) may help.
- Make a list of the fiduciary tasks to complete for the plan.
- Store and retain documents related to your fiduciary responsibilities. Review record retention guidelines (PDF) for examples.
If Principal® is your organization’s retirement plan service provider, you have access to resources that may help you manage your fiduciary responsibilities. Just search for “Fiduciary File” in the Help feature in the secure Employer website. You’ll find a fiduciary log report to record activities you complete and a fiduciary document catalog to identify documents you may need to store.
You can also rely on your financial professional, third party administrator, attorneys, tax accountants, and other professionals to help you manage and navigate your role.
