A Retirement Plan Fiduciary’s Responsibilities – Part 2


Welcome to part two of our series on the responsibilities of a retirement plan fiduciary.  In part one of this series we cited the five significant responsibilities that a retirement plan fiduciary has.  Previously we spent a considerable amount of time talking about the first two responsibilities – managing the plan for the exclusive benefit of the participants andact prudently at all times. In this post we will discuss the remaining three significant responsibilities, which are selecting and monitoring plan investments, selecting and monitoring the services of the plan and finally, abiding by the plan's provisions.  Let's begin with what can be a challenging task for a plan sponsor without a significant background in investment management – selecting and monitoring plan investments.

When selecting and monitoring investment options for a retirement plan, a plan fiduciary must make sure that the plan is diversified on two levels; the fund or investment level, andthe acid class level.  As we discussed in part one of this article, fiduciaries are held to a very high standard in the area of investment selection and monitoring for qualified plans under ERISA regulations.  The standard that plan sponsors are held to is that of an expert.  This standard is often referred to as the prudent expert standard, and represents a higher level of prudence than the more traditional person standard that most corporate executives are familiar with.

At the fund level, plan sponsors must make sure that they select investment options that are diversified.  Most mutual funds will meet this requirement however; caution should be exercised when selecting mutual funds that focus on a particular sector of the market such as technology or health care.  Also plan sponsors should remember that not all mutual funds are broadly diversified portfolios.  There are some mutual funds, which have a much more focused objective and investment strategy, and may only own 20 to 40 investment options.

When diversifying plan investment options at the asset class level, plan sponsors must ensure that participants have access to multiple investment categories sothey can adequately diversify their portfolio, based on their personal goals and their personal risk tolerance.  Plan sponsors will therefore want to make certain that they have investment options that represent most of the available capital markets.  A plan sponsor may for example, want to include a variety of equity-based mutual funds providing exposure to the small, mid and large cap sectors, as well as several fixed income mutual funds covering the short, intermediate and long-term fixed income markets.  Companies sponsoring qualified retirement plans may also want to make certain that their participants have the opportunity to invest in stocks of companies based in foreign countries through an international stock mutual fund.

In addition to selecting and monitoring the investment options in the plan, plan sponsors have a responsibility to have a process in place to other service providers.  Processes should be in place to ensure an appropriate level of service, and to document the associated cost of those services is reasonable based on what is available in the marketplace for similar sized plants.  Making certain that the vendor cost is reasonable is particularly important if these costs are being passed on to the plan's assets, and are reducing the returns available to the plan's participants.  Some service providers that plan sponsors should periodically monitor include the following:

  • The recordkeeping firm – traditionally maintains the books and records of the plan,  performs services such as tracking participant account balances,  transaction history, tracking all plan balances at the plan participant level by source of funds, provides monthly statements and Internet access for participants and the plan sponsor, along with many other related services
  • The third-party administrator –  provides a variety of qualified retirement plan services such as maintaining the plan document, performing a variety of required annual tests, completing a signature ready tax return for the plan, performing profit-sharing, and other employer contribution calculations for the plan
  • The investment provider – could be a bank, a registered investment advisory firm, an insurance company or a broker.  These providers offer a number of services to plan sponsors including investment menus, assistance with due diligence, monitoring of investment options, education and counseling for participants, as well as investment counseling for the plan sponsor
  • The auditor –plans of a certain size require an audit be performed on an annual basis.  Very broadly, the purpose of a plan audit is to confirm that the assets reported by the recordkeeping firm exist and that the transaction history is accurate based on the plans published reports

As you can see, the services needed to establish and maintain a qualified retirement plan such as a 401(k) plan are extensive and complex.  The challenge to the plan sponsoris that they are responsible for not only the servicesthe outside vendors are providing their participants, but are responsible for ensuring that these services are being provided to the plan at a reasonable cost.

The last significant responsibility that retirement plan sponsors have is to simply abide by the plan's provisions.  The only instance where it is acceptable to not comply with a plan provision is if that plan provision does not meet ERISA requirements.  This is another responsibility that may seem comparatively straightforward and easy to meet, however aspects of this requirement can also be challenging.  This is particularly true when trying to determine things such as whether or not a participant is eligible for a hardship distribution or other special request.

In conclusion, a retirement plan fiduciary has a significant set of responsibilities.  They are ultimately responsible for every aspect of the plan, including the services provided by other service providers.  Furthermore, for certain responsibilities such as the selection and monitoring of investment options, the plan sponsor is actually held to a higher standard than the standard that they would be held to as an officer of the company when managing corporate assets.  Finally, as regulators have made plan sponsors personally liable for the concise execution of fiduciary duties, it is paramount for each plan sponsor to pay close attention to their responsibilities.


Dean Piccirillo offers insurance products through HBK Sorce Insurance LLC. Investment advisory services are offered through HBK Sorce Advisory LLC d/b/a HBKS Wealth Advisors. Mr. Piccirillo is not able to transact business in a state that he is not licensed or registered.