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Understanding Fiduciary Roles & Responsibilities

Understanding Fiduciary Roles & Responsibilities

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Fiduciary Basics

Retirement plans provide tremendous rewards to employee participants and plan sponsors. And, with great rewards, come great responsibilities. Learn more about your fiduciary responsibilities, including acting in the best interest of your retirement plan participants and complying with the Employee Retirement Income Security Act of 1974 — a federal law commonly known as ERISA.

Common-law Fiduciaries

Generally, a common-law fiduciary takes care of money for another person and acts in his/her best interest. Classic fiduciary relationships include:

  • Attorney and client
  • Guardian and ward
  • Principal and agent
  • Trustee and beneficiary
  • Holder of power of attorney

The ERISA Fiduciary

ERISA governs management of retirement plans and protects the rights of participants and beneficiaries by imposing rules that ensure a Fiduciary manages retirement plans properly.

A Fiduciary, as identified by ERISA, can include, but is not limited to:

  • Plan sponsors
  • Plan administrators
  • Plan trustees
  • Investment managers
  • Committee members

Compared to a common-law fiduciary, an ERISA Fiduciary is held to a much higher standard of care. He or she must act prudently while also having significant knowledge about the actions he/she takes. This is often called the prudent expert rule.

ERISA Fiduciary Responsibilities

A prudent Fiduciary uses care, skill, prudence and diligence when selecting and monitoring investments for a retirement plan and when assessing performance and service levels of plan providers. When carrying out responsibilities, it must be done solely in the interest of plan participants for the exclusive purpose of providing plan benefits and defraying reasonable expenses.

The prudent expert rule focuses on having procedures in place for making fiduciary decisions. The rule does not require a specific outcome. A Fiduciary can prove his/her prudence by using documented procedures.

Selecting a Retirement Plan Provider

When choosing a new retirement plan provider or continuing with an existing plan, a Fiduciary must conduct due diligence. This includes reviewing documentation, investments and fees and compiling them into a fiduciary file, which helps prove that diligent procedures were followed.

As part of due diligence, a Fiduciary evaluates a plan provider’s fees and expenses, as compared to other similar plans. This helps the plan sponsor and employee participants know that even if the plan isn’t the “cheapest,” its costs are reasonable and appropriate.

Minimize Fiduciary Risk

In addition to having a fiduciary file, you can follow these best practices to reduce risk:

  • Establish an Investment Committee Agreement or Charter to formalize operational rules and procedures for committee members.
  • Write an Investment Policy Statement (IPS) to provide a framework for how to select and monitor a plan’s investment options and managers.
  • Use an Investment Policy Statement as a framework for managing selection and monitoring of the plan’s investment options and investment managers.
  • Prohibit transactions by individuals who may have a conflict of interest as well as self-dealing by a Fiduciary.
  • Conduct timely transactions. Plans subject to Title I of ERISA require timely remittance of employee deferrals, after-tax contributions and participant loan payments.

Get Help with Fiduciary Responsibilities

A Fiduciary can be held personally, or even criminally, liable for losses. All it takes is for a Fiduciary to breach his or her duties. Work closely with your plan provider to prevent a fiduciary breach, and talk to your financial professional about tools available to ensure compliance.


Neither AUL or OneAmerica Securities nor their representatives provide tax or legal advice. For answers to specific questions and before making any decisions please consult a qualified attorney or tax advisor.


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