Who Are Your Fiduciaries?

Who they are, and how you can hold them responsible.

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Scott Holsopple
If you’ve ever been part of an employer-sponsored retirement plan—like the federal Thrift Savings Plan, a 401(k), or a 403(b)—you’ve been under the care of a fiduciary. Most likely your plan has several fiduciaries.

Fiduciaries are important in the world of investing and retirement plans because their decisions affect every plan participant. As a participant in a retirement plan, you should know your fiduciaries and their monitoring responsibilities. As informed investors, you should be able to make better decisions for your future.

[See What's With All of the Fund Changes?]

According to the Department of Labor, “Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries.”

The DOL is enforcing a 1974 law called the Employee Retirement Income Security Act, which has been updated through the years. For the average retirement plan investor, the result of the ERISA standards is that plan fiduciaries have some level of legal liability for your retirement plan. That doesn’t mean you can successfully sue them if your investments don’t perform exactly as you’d wished. Rather, you can monitor them to ensure they’re doing everything the DOL says they should.

There are three basic categories of retirement plan fiduciaries. Here is a simplified breakdown of the definitions:

1) There are named fiduciaries whose job title is specifically mentioned in plan documents as a fiduciary role. These often include plan trustees, company officers, and plan administrators.

2) There are named fiduciaries whose role is implicitly associated with the functions of the plan, even though it isn’t specifically spelled out in plan documents.

3) There are unnamed fiduciaries who assume a fiduciary role by providing advice or affecting the investment choices available in a plan. With this proposed definition, many people become unnamed fiduciaries and begin to assume some level of liability for the advice they provide to plan sponsors and/or plan participants.

From a practical perspective, if you’re looking for retirement plan advice, you might benefit from speaking with an organization that openly markets itself as a fiduciary. These organizations are aware of their own liability and should diligently attempt to provide suitable advice.

Three important questions you can use to monitor a retirement plan fiduciary are:

[See Preparing for Open Enrollment.]

Do you have a diversified fund line-up from which to make your investment selections? Employer-sponsored plans should offer a variety of investment options, meaning there are aggressive and conservative offerings with a range of market exposure. For example, a diversified lineup could include both value and growth funds in the large-cap, mid-cap, and small-cap categories; international funds; and bond funds. That doesn’t mean it is appropriate for one individual investor to have exposure in every fund. Instead, the plan should have enough investment diversity so each employee who participates can create a portfolio suitable for his or her individual needs and risk tolerance.

Are your fees reasonable? New reporting rules that take effect in 2012 mean plan sponsors and plan participants alike will have more accessible information about retirement plan fees. Plan sponsors have always been, and will continue to be, accountable to ensure fees are in-line with similarly sized plans. However, beginning in 2012, participants will be able to do comparative research much more easily.

Does your employer make timely deposits? Fiduciaries must ensure that contributions are promptly deposited. Check your plan account periodically to see how quickly your payroll deductions are added.

Though the ERISA language can be confusing, even for financial industry insiders, fiduciary regulations are designed to benefit plan participants. The best way you can use knowledge about fiduciaries’ responsibilities is to monitor whether you’re being provided with a good retirement plan. And the best use for information about who is a fiduciary is to ensure you’re receiving investment advice from someone who will back up that advice.

Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal. Keep tabs on Scott on Twitter and Facebook.

The author of this article is not an attorney, and nothing in herein should be construed as legal advice. Contact a qualified attorney to discuss ERISA laws, general fiduciary obligations and/or standards, and any other matters discussed in this article.