If your organization sponsors a 401(k) or other retirement plan you, or someone in your organization, is a fiduciary to that plan.

You may have hired a service provider to administer the plan (a third party administrator, or “TPA”), but the buck stops with your organization. This is because the fine print in your TPA’s service agreement says the official “Plan Administrator” is the employer, not the TPA. This means the employer has the ultimate responsibility for the plan’s ERISA compliance.

On the investment side, the plan’s trustee or investment committee will be a responsible plan fiduciary. The investment fiduciary must act with the care, skill, prudence and diligence of a prudent person “familiar with such matters.”

This is a prudent expert standard. So ask yourself, do the people making investment decisions for your plan have a financial or investment background? If not, you need to consider engaging a professional investment advisor to assist with investment decisions.

What does all this mean to you?

Plan fiduciaries do not have to make perfect decisions but they do need to exercise diligence in their deliberation on both administrative and investment matters. It is always advisable to document fiduciary deliberations as the best defense to a claim of fiduciary misconduct. Remember, good intentions never justify fiduciary misconduct including any inattention to fiduciary duties. As one federal judge put it: “A pure heart and an empty head are not an acceptable substitute for proper analysis.”

There are other steps that plan sponsors take to help their plan fiduciaries:

Hire an investment advisor, adopt an investment policy statement – and follow it!

Meet with your investment advisor at least annually to review plan investments – and document these discussions.

Perform self-help compliance checkups for your plans using IRS and Department of Labor websites.

Consider fiduciary insurance (that’s not the plan’s ERISA fidelity bond).

Get professional help when you need it, and consider using independent legal counsel to assure the confidentiality of sensitive plan-related information.


Take another look at the bullet points immediately above. Is there any good reason not to follow each of those protective steps?