Employer Fiduciary Responsibilities

Whether large or small, employers that provide a retirement plan all face one common risk: Fiduciary Responsibility.

Employers that provide a retirement plan have a fiduciary responsibility to keep the plan in compliance with the Employee Retirement Income Security Act (ERISA). Due to the complex regulatory rules, plan sponsors can often find it difficult to meet their fiduciary responsibilities placing them at risk for costly fines, penalties, and legal ramifications.

ERISA litigation has exploded in recent years and employers have been shocked to learn that they face personal liability and potential financial ruin as a result of sponsoring a retirement plan.

While public corporations and large non-for-profits like educational institutions have been defending themselves in massive class-action lawsuits, plaintiff attorneys have recently begun to focus on mid-sized and small plans whose employers have fewer resources and are forced to settle cases, rather than face enormous litigation expenses.

One major area of litigation has become the failure of employers to set up proper processes and procedures to follow in satisfying their fiduciary obligations, failure to properly monitor plan fees, and inadequate review of the performance of investment advisors.

An investment advisor can take much of your fiduciary responsibility off your plate by acting as a named investment co-fiduciary for your business’ retirement plan.  ERISA actually has a pretty advanced standard that’s called the Prudent Expert Standard… You’re supposed to hire experts when you’re not qualified. Unless there’s internal expertise at the plan sponsor level, it’s your responsibility to consult with an expert.

You can delegate most of your responsibility to a Fiduciary. A 3(38) Fiduciary will actually make the decisions about what to include in the plan menu, implement it, and then manage the investments on an ongoing basis.  A 3(38) Fiduciary is an investment manager. This means they handle the work, review investment options, make decisions, and ultimately take responsibility for your plan’s day-to-day investments.

What does it mean to be a 3(38) Fiduciary (a.k.a. Investment Manager)?

Fiduciaries are subject to high standards of conduct and have important responsibilities because they act on behalf of participants and their beneficiaries in a retirement plan.

They must act:

  • Solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them.
  • Makes the actual investment decisions and selections, so they’re responsible for their own mistakes or mismanagement.
  • Prudently in carrying out their duties
  • Diversifying plan assets to minimize the risk of large losses
  • Following the terms of the plan document to the extent they are consistent with ERISA requirements
  • Paying only reasonable plan expenses
  • Avoiding conflicts of interest
  • Research and conduct analysis to determine the best-recommended plan lineup.
  • Monitor ongoing plan performance and fees and make changes as needed.
  • Meet with company fiduciary (employee, owner, board, or committee) to discuss rationale, actions, and performance.
  • Provide additional and optional support services for participants (i.e financial wellness education).

Leveraging Shore Financial Planning & Vanguard Retirement Plan Access, you can couple our advisory expertise with one of the most trusted names in the industry. Our firm can provide invaluable retirement plan support that includes:

  • Selecting and monitoring funds.
  • Serving as an investment fiduciary.
  • Assisting with plan design.
  • Creating investment policy statements.
  • Providing participant education.

Unlike most investment firms, Vanguard & SFP have no owners outside of our clients. Vanguard is owned by the Vanguard funds, which in turn are owned by their shareholders—including you if you become a Vanguard fund shareholder.  That means we have no conflicting loyalties. With no outside investors or stockholders looking to maximize profit, we can focus on what matters most—you and your employees.