Understanding the Fiduciary Role

Companies both Large and small usually offer 401(k) plans as an added benefit for their employees. Benefits like these are a great way to not only attract top talent but retain them as well. Many small business owners who are mapping out their future and planning for retirement participate in this plan. This allows them to take the same advantages as their employees with long-term savings.  

As a plan sponsor, it’s important that you take the time to become knowledgeable on investments, learn about designing a plan, and who the service providers are that maintain the plan. After that, setting up a plan is the “easy” part. The hard part comes when you’re looking to reduce liability – because the plan’s sponsor is a fiduciary. Business owners who sponsor 401(k) plans are charged with making decisions for the plan based on how the plan benefits the participants, not the company.  

Understanding who the fiduciaries are is crucial to plan administration. Sometimes employees become a fiduciary to the plan without realizing it. This is especially common in small businesses, where employees tend to wear many hats.

A fiduciary to the 401(k) plan is someone who:

  • Is named as a fiduciary in the document
  • Makes any management decisions about the 401(k) plan
  • Has authority over the plan or the administration
  • Aided in selecting the investments for the plan
  • Job Title such as CEO, Director of HR, etc.
  • Is a committee member making decisions about the plan

It’s important to identify who the fiduciaries are. Fiduciaries have to act in accordance with the plan document, keep a record of any meetings and decisions made, develop a written procedure for regular decisions, and much more. Businesses have the option to hire outside fiduciaries that can perform different tasks and reduce any liability to the business.

Examples of these outside sources are:

  • 3(16) Plan Administrator
  1. Act in accordance with the plan document
  2. Provide the necessary fee disclosures
  • 3(21) Administrator
  1. Acts in accordance with the plan documents
  2. Has the ability to hire and fire service providers
  3.  3. Provides compliance support
  • 3(38) Investment Manager
  1. Selects, monitors, and updates the plan investments
  2. Full fiduciary for the plan investments
  3. The plan sponsor relinquishes control of the plan investments to the 3(38)
  • 3(21) Investment Advisor
  1. Advises on plan investments
  2. Co-fiduciary on plan investments
  3. The plan sponsor doesn’t have to take the advice

Hiring an outside fiduciary can alleviate some of the burdens, but knowing where to start can be complicated. It can be challenging simply figuring out what questions to ask and then trying to understand the different regulations you need to abide by.   

Hiring FiduciaryShield will solve that problem. As a full scope 3(21) Administrator, FiduciaryShield has a proprietary process for selecting service providers and monitoring them accordingly. FiduciaryShield provides the administration of the plan in accordance with the plan document as well as ongoing compliance to mitigate any liability. We will work with your current advisor to provide the necessary support, ensuring that the participants benefit and you find the plan that works best for you.