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Fiduciaries, Know Thy Duty

“I’m a fiduciary? What does that mean?” Strange as it may seem, there are plenty of plan sponsors who ask that question — more than half of them, in fact, according to Unified Trust Company CEO Dr. Gregory W. Kasten. In an ASPPA webcast, “Breaking Down the Many Fiduciary Roles, Obligations and Service Models,” he offered information to dispel the fog regarding what a fiduciary does and can do. 

Kasten said that his company has found that many plan sponsors erroneously think that vendors of financial products and services will take the fall if an error is made — not them. Worse, less than half understood that under ERISA, a fiduciary has a loyalty to plan participants and beneficiaries, and must make its decisions with an eye only to their interests. 

It is most important that plan sponsors understand that named plan fiduciaries are at the heart of a plan’s fiduciary functioning, since under ERISA they ultimately control and manage the plan’s operations and administration. In fact, ERISA requires a plan to have at least one. 

While it is possible to delegate discretion over managing some aspects of a plan, sponsors need to be careful. And they can only do so if the plan document says they can. If it does, they must remember that delegating responsibilities does not translate to delegating fiduciary duty. And if delegation is not done properly, liability reverts to the named fiduciary (or fiduciaries). 

As a case in point, Kasten said that in his view, investment managers are being oversold as being in charge of more than they really are. Another avenue for plan sponsors is to name co-fiduciaries, but he noted that their role typically is undefined and they usually have responsibility over only a very small aspect of fiduciary duty. 

Prudence is key, Kasten argued, in exercising fiduciary duty. He offered these pointers:

  • consider what information is relevant to the decision;
  • obtain the information;
  • analyze the information;
  • make a reasoned decision that other experts in similar situations would make; and
  • document the decision. 

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John Iekel is Senior Writer at ASPPA, as well as Editor of the ASPPA Net and NTSA Net web portals.