How To Prepare Yourself as a Fiduciary

You have been selected as a member of your company’s retirement plan committee. Aside from adding an additional meeting to your schedule, what does that mean? Well, it means that you are trustworthy and dependable and the company leadership values your opinions and ideas. It also means you have some new responsibilities.

You may now be a fiduciary. Being a fiduciary carries with it some serious responsibilities that can have real consequences. Unfortunately, most committee members only have a vague understanding of what a fiduciary is and receive no training regarding their responsibilities.

With government audits and class action lawsuits increasing, it can be dangerous to be unprepared for your role as a fiduciary. Every committee member should understand their legal responsibilities and be prepared to fulfill them.

What Does It Mean To Be A Fiduciary?

The Employee Retirement Income Security Act (ERISA) spells out fiduciary responsibilities in detail: to run the plan solely in the interest of the participants and beneficiaries for the exclusive purpose of providing benefits and paying plan expenses; to act prudently; to diversify the plan’s investments to minimize risk; to follow the terms of the plan documents; and to avoid conflicts of interest. Today, we will discuss preparing for your fiduciary responsibilities by focusing on following the terms of your plan documents and using a “prudent” process in making decisions regarding the plan.

It is best practice and a prudent activity to have a documented process that you follow to arrive at your decisions as well as thorough documentation of the decisions you make and the rationale behind them. In addition, both your process and decision must be in alignment with your plan documents.

Get To Know And Follow Your Plan Documents

To prepare yourself for your role as a fiduciary, you should familiarize yourself with the following documents:

Plan Document and Adoption Agreement

The Plan Document and Adoption Agreement are formal written documents that detail how the retirement plan operates and it’s requirements. That is where the plan governance information is, which you will need to know and follow to fulfill your fiduciary duties.

Company Bylaws

There may be specific references to the retirement plan committee in your company bylaws. They would describe your responsibility for the administration and investments of the company’s retirement plans. Read what the bylaws say about your role and responsibilities.

Retirement Plan Committee Charter

Your retirement plan committee itself should have a charter. The committee charter is a document used by the board of directors to delegate and outline committee responsibilities and duties.

Board of Director Resolutions

Your company board of directors may also have passed resolutions regarding the company retirement plan. When reviewing resolutions, look for ones delegating authority or responsibility with respect to a retirement plan.

Investment Policy Statement

Though not required by law, most retirement plans have an investment policy statement (IPS). The IPS describes the process for selecting and monitoring investments under the retirement plan.

Understand Your Plan’s Governance

All of these documents describe your legal role as a member of the retirement plan committee and are used to create the governance structure of your plan. Plan governance is simply the administrative oversight in place to make sure your plan stays effective and compliant. Your governance process is a framework that will guide decisions about all aspects of the plan. Because of this, it should be carefully crafted and followed.

Each of the above documents should be reviewed to ensure that the plan governance language is consistent between them. Once they are all in alignment, you need to make sure that the actual operation of the plan is consistent with the documents.

When assigning responsibilities, it can help to draw a chart of the different jobs and tasks required from the plan’s legal documents and to ensure you are following ERISA requirements. Names can be added to the chart so that everyone on the committee is in agreement as to who is doing what and so each fiduciary can sign off on their responsibilities.

It might help clarify things to break down the responsibilities into two categories; fiduciary functions and non fiduciary functions. Fiduciary functions include selecting and monitoring plan service providers and investment options and administrative issues. Non fiduciary functions are things more like amendment authority and plan design.

How We Can Help

Having everything spelled out clearly will make it much easier for you and your fellow committee members to understand and fulfill your fiduciary duties. If you need help mapping out your plan governance or would like fiduciary training for your committee, give us a call at (855) 530-0500 or email [email protected]. We look forward to helping your committee prepare to fulfill your fiduciary duties with ease and excellence.

About Brad

Brad is the Managing Partner of the retirement plan consulting business at Stonebridge Financial. Since 2004, he has dedicated his time and energy to helping his clients build and manage highly effective retirement plans. Working with closely held businesses, publicly traded companies, and non-profit organizations, Brad evaluates existing retirement plans to develop success goals. Collaborating with his clients, he makes improvements while maintaining the highest degree of fiduciary prudence and process.