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Fiduciary Duties

Fiduciary Duties for Qualified Retirement Plans

Who is a fiduciary?  A fiduciary is a person who is entrusted with the safekeeping of a retirement plan’s assets and is legally obligated to act in the best interest of plan participants. Commonly, owners, trustees, and some investment advisors are considered fiduciaries.  With limited exceptions, a fiduciary is anyone who: has or exercises any discretionary authority or discretionary control over the management or administration of the plan; has or exercises any authority or control with respect to management or disposition of the plan’s assets; gives investment advice to the plan for a fee or other direct or indirect compensation or has the authority or responsibility to do so.  It is important to note that having the authority can make you a fiduciary, even if you do not exercise that authority.

What are a fiduciary’s duties?  All plan fiduciaries should have a good understanding of their obligations in overseeing their company retirement plan(s).  Below is a general overview of fiduciary duties and responsibilities. It is not intended to be a detailed or comprehensive list.

  1. Must act solely in the best interest and for the exclusive benefit of plan participants and beneficiaries.
  2. Must defray plan expenses in a reasonable manner. This implies that a fiduciary must know what all the plan expenses and costs are and understand the associated value received.
  3. Must comply with all plan documents and all applicable federal and state laws and regulations. This implies that fiduciaries should become familiar with them.
  4. Where a fiduciary is unsure of their expertise, they have a duty to seek the advice of experts and carefully evaluate the advice given.
  5. May not engage in certain transactions with parties providing services to the plan such as the sale or leasing of property, lending of money, furnishing goods, services or facilities, or the transfer or use of plan assets.
  6. Self-dealing is prohibited and therefore fiduciaries cannot use their position for personal gain.
  7. May not act on behalf of any party whose interests are adverse to the interests of the plan or the plan participants. 
  8. Must act with the care, skill and diligence that would be exercised by a reasonably prudent person who is familiar with such matters.
  9. Affirmative duty to diversify plan investment options.
  10. Obligation to prudently select investment options for the plan.  Obligation to periodically evaluate the performance of such vehicles to determine whether the vehicles should continue to be available as participant investment options.

Can fiduciaries limit their exposure?  Fiduciaries have personal liability.  As a fiduciary, you are permitted to hire third party providers to limit exposure to fiduciary breaches.  Establishing plan rules and following best practices can assist fiduciaries in meeting their responsibilities. However, the risk can never be completely eliminated.  At a minimum, fiduciaries remain responsible for the selection and ongoing monitoring of their providers and other fiduciaries. 

Fiduciaries can purchase ERISA fiduciary liability insurance which is not to be confused with the required ERISA fidelity bond insurance for plans.  If you are uncertain and wish to purchase ERISA fiduciary liability insurance, first check with other insurers (Errors & Omission, Officers and Directors, Employment Practice policies) to see if you are already covered under one of your company’s other polices.

How does The Paragon Alliance Group, LLC assist fiduciaries?   Our primary role is to assist our clients with the plan’s operation, legal documents, testing and reporting.  Our financial advisor and platform record keeper relationships assist with the plan’s investments and employee education. 

In more detail, we design tax qualified plans that are geared to meet the unique goals and needs of each specific client, within the confines of the law.  We are extremely familiar with retirement plan rules, not only from our staff’s many years of experience, but through ongoing continuing education initiatives.  We sponsor our own plan document, which has been approved by the IRS.  Once a plan is designed, we create signature ready plan documents that are peer reviewed, and then provided to our clients for review and execution.  Once executed, with the cooperation of our clients, we assume the responsibility of maintaining the plan document to comply with all updates and changes as required by law.  We take this responsibility very seriously.

In addition to providing plan documents, we act as Plan Consultants to assist our clients in operating in accordance with the terms of the plan and within the law.  This can involve frequent interaction as we encourage our clients to always ask questions if they are not 100% sure of any answers, especially if they may be communicating responses with employees.   Additionally we integrate our services with the plan’s financial advisor and platform record keeper, so there is service consistency. 

On at least an annual basis, we perform all the necessary compliance tests and reporting as required by law.  We provide an annual compliance review letter with an action plan listing items that require attention.  We routinely follow up on action items as needed.  For larger plans, we routinely assist plan auditors with their questions and data needs. As clients’ needs change or expand, our consultants work with clients to analyze and anticipate changes needed in plan design.  Of course, we rely on our clients to follow our instructions and provide accurate and timely data in order to obtain a successful outcome.

Finally, we will “stand by you” in the event of a regulatory audit.  We have assisted many clients with organizing audit information requests, even in cases where we were not the service provider for the actual audit plan year.