By Kristie L. Guadiano, Director, Greystone Retirement Group, Inc., A Doeren Mayhew Partner

Businesses choosing to sponsor 401(k) plans for their employees take on a great deal of fiduciary responsibility and liability under the Employee Retirement Income Security Act of 1974 (“ERISA”). Sadly, many owners and executives don’t have the faintest idea of the level of responsibility they signed their company and any acting fiduciaries up for.

A Fiduciary’s Responsibility

Most plan sponsors are unaware of the many duties required of them as a fiduciary or weight of responsibility it carries. The lack of clarity is concerning given a breach of these responsibilities can result in personal liability.

ERISA mandates fiduciaries live up to high standards while being entrusted with the plan’s assets. Fiduciaries must act solely in the interest of plan participants and their beneficiaries, and with the exclusive purpose of providing benefits to them. They need to have the expertise and skill set to determine whether the plan provider’s services, fees and investment offerings are reasonable and appropriate.

Participant-Directed Litigation

An upswing in 401(k) plans versus traditional pension plans has shifted investment risk and retirement savings obligations to plan participants. Unbeknownst to many plan sponsors, legal responsibility for plan investments and fiduciary responsibility still lies with them. This is true even for a participant-directed plan.
Unfortunately, shifting burden to participants has only magnified certain fiduciary obligations. Recently, plan sponsors have found themselves in litigation focusing on plan fees, amongst other things, alleging they have violated their fiduciary duties. Permitting the plan to pay excessive fees and expenses, failing to monitor fees and expenses, and lacking the knowledge on industry trends are just a few of the complaints filed.

If your company offers a participant-directed 401(k) plan, having the appropriate selection and monitoring of the investment menu offered can help carry out your fiduciary responsibilities and avoid litigation.

Limiting Your Liability

Today many companies look to an independent investment fiduciary to carry out the duties associated with offering employees a 401(k) to limit fiduciary exposure and liability. This ERISA-approved option provides protection for plan sponsors, owners and executives. The unbiased advice of knowledgeable professionals can also benefit employees when selecting and allocating retirement assets.

The idea here is simple, delegating investment responsibility to outside experts insulates a plan sponsor from both responsibility and liability. If properly delegated, plan sponsors are not obligated to invest or manage any assets of the plan that the investment manager is responsible for overseeing.

Seek Assistance

Your employer-sponsored 401(k) retirement plan is too important to be left to chance. Employers without the necessary expertise to satisfy ERISA’s fiduciary obligations should seek the advice of a qualified, independent and conflict-free advisor to help select their plan and periodically monitor it. Doing anything less may be a breach of your fiduciary requirements.

Contact our advisors at Greystone Retirement Group, Inc. to ensure you are living up to your fiduciary liabilities.