Fiduciary Responsibility Series

   Part 1: Eye on the target — the basics of fiduciary responsibility

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In a world of changing regulations, shifting market needs and evolving plan designs, defining your fiduciary responsibility as a plan sponsor can be a moving target. The key to keeping your focus in this environment is to establish a consistent process that helps you ensure compliance, reduce risk and maximize outcomes even in the face of changing conditions.

It starts by understanding the obligations of a fiduciary under ERISA, and then implementing a plan to meet and maintain them. We outline here the various elements that you should consider to be part of your plan and also introduce the ten most common mistakes fiduciaries encounter. We expand upon these potential fiduciary mistakes in other parts of the Fiduciary Responsibility Series. Being aware of these steps and potential pitfalls, in addition to seeking guidance from your legal counsel, can help you become a more compliant and responsible fiduciary.

A prudent process

The requirements of fiduciary responsibility are rooted in common sense and sound business practice. While specific regulations may change, a prudent fiduciary process should consider several key points.

ERISA Essentials:

Fiduciary…or not?

Regulatory changes over the past few years have placed more nonprofit retirement plan sponsors into the role of fiduciary. Fiduciaries may be formally designated, or they may be considered fiduciaries by virtue of the role or activities they perform. Because fiduciaries are held to high standards and can be personally liable for breaches, it’s important to clearly identify them, along with any fiduciary responsibilities allocated to third parties as defined under ERISA.

As you’ll see throughout this series, documentation is a critical aspect of fiduciary prudence. In addition to identifying fiduciaries, documentation should also include acknowledgement that fiduciaries understand their roles, along with evidence of initial and ongoing fiduciary training. Sponsors should not downplay the importance of fiduciary training as it has been the subject of recent DOL retirement plan investigations. Meeting notes with fiduciaries should be taken in greater detail than traditional corporate minutes, and all minutes and materials distributed to fiduciaries should be retained, approved and signed by each fiduciary. In this environment, rigorous documentation is necessary to protect your interests, as well as the interests of the plan and its participants.

Seven steps to success

There are some basic steps you can take to help you meet your fiduciary responsibilities.

  1. Understand your responsibilities to avoid common fiduciary mistakes (see below).
  2. Establish a plan governance process that defines all fiduciary roles, protocols and procedures. You should also maintain files that document all the processes that you have in place as proof of your due diligence.
  3. Revisit plan design and the Plan Document to determine if you are in compliance with IRS plan document requirements and you are operating in compliance with your plan document.
  4. Assess investment policy and management by creating an investment policy statement that aligns with the plan’s objectives. It is in the interest of your participants to consider an investment approach that gets them both to and through retirement.
  5. Review compliance monitoring processes to determine whether transactions meet their respective limits and timing requirements. Part of the monitoring process should also include benchmarking investment performance against established benchmarks.
  6. Communicate with employees regularly to meet required communications and provide employees with access to the information they need to make informed decisions.
  7. Complete annual plan and investment reviews. A review process, which also includes reporting, can help clarify how well your plan is working and identify areas for improvement.
  8. Maximize value through plan simplification which can benefit you by helping to control costs and ease the administrative burden on your staff.

Common fiduciary mistakes

Plan sponsorship has never been easy, and today’s volatile regulatory and market environment adds more complexity. Listed here are some of the mistakes fiduciaries may commonly make. Avoiding them is more important than ever. Public plan administrators should also be aware that ERISA rules provide helpful guidance and best practice, and may actually be binding in certain states.

For additional information on how to address these concerns, you may review other installments of TIAA’s Fiduciary Responsibility Series.

Top Ten Fiduciary Mistakes:
  1. Failure to follow plan documents
  2. Improper selection of plan investment alternatives
  3. Improper monitoring of plan investment alternatives
  4. Improper selection of plan fiduciaries
  5. Improper delegation of fiduciary functions
  6. Inadequate investment education and disclosure of fees
  7. Undue reliance on an “expert”
  8. Confusion surrounding fidelity bonds and fiduciary liability insurance
  9. Failure to understand and follow restrictions in plan funding vehicles
  10. Failure to disclose plan changes to participants

Explore further
For more on this topic and on how fiduciaries can address the challenges they face, visit our Fiduciary Responsibility Series site.