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Employer Fiduciary Responsibilities for 401(k) Retirement Plans

By Liz Sheffield

If you’re an employer that offers a 401(k) plan, you should be aware that doing so means you take on fiduciary responsibilities regarding plan administration. This is true even if you hire outside professionals or use internal committees to manage the plan.

Not every retirement plan decision is considered a fiduciary action.  When an employer decides to a plan, develop a benefits package, incorporate certain features, modify, or terminate a plan, those are considered a business decision. When steps to implement these decisions are made, that person is a fiduciary.

As the Department of Labor explains, fiduciary responsibilities include items that demonstrate acting in the interest of plan participants:

Manage duties with care

Prudent management of fiduciary responsibilities requires an established, documented process for making decisions about investments, which might include hiring an expert with necessary financial investment knowledge to assist with the management of the investments. In addition, fiduciaries are responsible for reviewing plan expenses to ensure they are reasonable.

Adhere to plan documents

The plan document directs plan operations. Employers must periodically review the document, and ensure it is accurate and updated to reflect any changes (e.g., changes in plan officials named in the record).

Diversify plan investments

Diversification of plan assess helps minimize the risk of significant investment losses. Fiduciaries must evaluate each investment as part of the entire portfolio and continue evaluating decisions based on the current financial environment.

The Department of Labor also offers several tips for employers regarding fiduciaries, including asking these questions:

  • Have you identified plan fiduciaries, and are they clear about their responsibilities?
  • If you are hiring third-party service providers, have you interviewed several providers, and determined if the fees are reasonable?
  • Are you prepared to monitor your plan’s service providers?
  • Do individuals handling plan funds possess a fidelity bond?

In the case of 401(k) administration and management, employers are subject to fiduciary responsibilities covered under the standards of conduct covered under ERISA because the employer is acting on behalf of participants in a retirement plan. As an employer, understanding those fiduciary responsibilities is not only crucial for a successful plan, and it’s also critical to ensure compliance with the law.