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Retirement Plan Sponsor's Fiduciary Obligations 101

Photo of author, Kathy White, FPQP™, CRPC®.
Kathy White, FPQP™, CRPC®
Associate Financial Strategist

As a 401(k) Plan Sponsor, there are responsibilities that should not be ignored if you want to make certain that you are fulfilling your fiduciary role. Remember, it is the Plan Sponsor who will be held accountable for anything that goes wrong with the plan.

Key Parties of a Retirement Plan

Plan Sponsor/Trustee: The plan sponsor is typically the Employer who establishes and maintains the plan while the trustee is responsible for the investments held by the plan. Both of these are fiduciary roles and must act solely in the best interest of the plan participants.

Consultant/Advisor: A plan sponsor may hire a consultant or advisor to take on a variety of roles within the 401(k) plan. One or more advisors may assist in, or completely take on, the tasks of plan design, investment management, selecting third party administrators and recordkeeper, and overseeing the RFP Process. Advisors are commonly used to select, monitor and optimize the fund lineup, and depending on their responsibilities, they may or may not be a fiduciary.

Third Party Administrator: A third party administrator handles many of the day-to-day aspects of plan administration such as designing plan documents, preparing statements, determining eligibility and vesting, and much more. This is a non-fiduciary role.

Recordkeeper: The name says it all -- one of the primary responsibilities of the recordkeeper is tracking plan assets. Essentially, they are the bookkeeper of the plan. This is a non-fiduciary role.

Custodian: The custodian is responsible for record-keeping and administration of the plan. Generally, a custodian is tasked with simply holding plan assets and has no authority to make changes. This is a non-fiduciary role.

Participant Education & Enrollment: If you have a professional advisor, he/she can help with this aspect of your retirement plan. Custodians can also help with employee education services.

Plan Sponsor Fiduciary Obligations
Below is a list of fiduciary obligation for plan sponsors as outlined by the Department of Labor. Failing to do even one of these could make an employer liable under fiduciary regulations:

  • Make decisions that are in the best interest of members of the plan.
  • Follow the summary plan description.
  • Diversify investment options within the plan.
  • Minimize expenses to defray the costs of the plan and its investments.
  • Monitor the investment performance within the plan.
  • Replace an investment that is no longer appropriate for the plan.
  • Use the “prudent person” rule when acting as the fiduciary of the plan.
  • Monitor all contributions (employee and employer).
  • Educate plan members on investment options within the plan.
  • Make sure the plan document is being updated to incorporate any changes to the plan and changes in the law that would affect or influence the plan.

Unfortunately, too many employers don't learn about a deficiency in one of the above obligations until it’s too late.

The answer? Employers should seek the help and guidance of a professional financial advisor, but not just any advisor will do. Plan sponsors need an ally who truly understands 401(k)s and has a strong track record of managing them. A knowledgeable financial advisor, like McKinley Carter, can “make the complex simple” and help to ensure all fiduciary obligations are met.

To learn more about the benefits of a professional advisor, read this article.


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