You may have heard chatter recently about President Trump’s executive memorandum pertaining to the Fiduciary Rule that’s currently set to go into effect this coming April (and the potential for that rule to be delayed). It’s also likely that you have questions about how this impacts you and your fiduciary responsibilities. Hopefully we can provide some clarity.
New Responsibilities Under The Fiduciary Rule
The Fiduciary Rule is an attempt to require anyone providing investment advice for a retirement account (in exchange for compensation) to act as a fiduciary. Therefore, under this rule, all advisers will be held to a higher standard of accountability. No longer will they be able to merely offer “suitable” suggestions, moving forward, they will be required to put their clients’ interest ahead of all others – which is a key component to serving as a fiduciary.
As a plan sponsor, you have always been held to a fiduciary standard separate from and regardless of the outcome of the Fiduciary Rule. And while being a fiduciary to your retirement plan is no doubt a very small part of your much larger job responsibilities, you should never take your fiduciary responsibilities lightly.
Remember, as an ERISA fiduciary, you can be held personally liable for a breach of your duties.
While there may be ways to act prudently in an effort to protect yourself from being held personally liable for a breach of your fiduciary duties, you must continue to practice constant vigilance in lieu of such efforts, which can include purchasing fiduciary liability insurance and hiring experts to step in when you don’t hold the necessary expertise.
Acting prudently means that you exercise the same care, skill and diligence any “prudent person” familiar with the administration of employee benefit plans would use in managing similar situations. For example, a prudent person who lacks the necessary expertise is expected to hire expert help while avoiding conflict of interest issues. Rather than making a selection based solely on the type of relationship you may have with a candidate, considerations on which to base your hiring decisions include:
- The reasonableness of fees (for the services they will provide, not necessarily which fees are lowest)
- License registration
- Business reputation
- Client references
Furthermore, be advised that simply hiring outside service providers does not eliminate your ERISA fiduciary responsibility. If you hire outside expertise to provide services in areas where you are lacking, you still hold the fiduciary responsibility to oversee those services and providers.
It’s Hard To Walk Away
Acting as an ERISA fiduciary is not an easy task and you may wish to absolve yourself from such responsibilities or share the burden. Even then, there are hurdles to jump.
For starters, hiring or appointing a co-fiduciary can help ease your daily workload, but your fiduciary responsibility will remain intact. All fiduciaries have potential liability for the actions of their co-fiduciaries. So, if a fiduciary knowingly participates in another fiduciary’s breach of responsibility, conceals the breach or does not take steps to correct it, both fiduciaries are liable.
And if you would rather just walk away from your fiduciary responsibility (even if your retirement plan has others), you will certainly find a few road blocks along the way. After all, there are certain procedures that must be followed to ensure that the responsibilities you’re leaving behind will be carried out by another fiduciary.
You Don’t Know What You Don’t Know
If the adage “you don’t know what you don’t know” holds true, you may be wondering whether you are actually doing everything you can to meet your fiduciary responsibility and whether there are opportunities to learn about any changes that could be coming down the pike. The answer is varied.
While some organizations will attempt to communicate that fiduciary training is mandatory, the Department of Labor has no regulatory authority to require a fiduciary to complete such a program. It could, however, be a best practice to consult with an outside expert regarding your fiduciary responsibilities, depending on your situation.
Being a fiduciary of your company’s retirement plan can be daunting, but by exercising care and following best practices, you can reduce your liability. Email Rea & Associates to learn how outside consultants can help you meet your fiduciary. And follow Rea on social media to stay up to date on news and events that can help ease your burden.
By Darlene Finzer, CPA, QKA, CSA (New Philadelphia office)
Looking for more fiduciary insight, check out these articles for more:
Department of Labor Finalizes Fiduciary Rule
How Safe Is Your Plan Participants’ Data?
Retirement Plan Sponsors: Do You Know What You’re Paying For?