United States

Know if you are a fiduciary

Top 10 ways to reduce your fiduciary liability #10


This sounds obvious, but it actually comes up quite often. According to the Employee Retirement Income Security Act of 1974 (also known as ERISA), a fiduciary is any individual or entity that has or exercises discretionary control or authority over the management of the plan or the plan’s assets; has discretionary authority over the administration of a plan; has provided investment advice to a plan for a fee or other compensation (or who has authority to do so).

How many fiduciaries should you have on a plan? A plan may have more than one fiduciary or an individual serving in more than one fiduciary capacity. For some plans, a fiduciary may be an administrative committee or a board of directors. But in the end, each plan must have at least one fiduciary, named in or identified with a procedure prescribed in the plan document.

Fiduciaries have an important responsibility because they act on behalf of the retirement plan participants and their beneficiaries. Co-fiduciaries such as investment or plan advisors can be designated to assist the named fiduciaries in monitoring and managing the plan.

A proposed Department of Labor rule would amend the definition of a fiduciary for the first time since 1974. The rule would significantly expand the type of investment advice that may arise. Under the new rule, the fundamental threshold element in establishing the existence of fiduciary investment advice is whether a recommendation for a fee occurred. The new rule redefines a recommendation as any communication that would reasonably be viewed as a suggestion to engage in or refrain from taking a particular action.

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