Tips for Meeting 401(k) Fiduciary Duties

The Department of Labor’s (DOL) fiduciary rule may be on hold indefinitely, but that doesn’t mean that fiduciary duties similarly are in limbo. A recent blog entry offers some tips for meeting them.

In “A Simple Guide for Meeting 401(k) Fiduciary Responsibilities,” an entry in Employee Fiduciary’s blog, Eric Droblyen argues that the attention that jurisprudence concerning 401(k) fees and the to-and-fro over the fiduciary rule has generated “has done little to help employers understand and meet their 401(k) fiduciary responsibilities.” This, he says, is “a big problem,” since employers can be personally liable if fiduciary duties are not fulfilled.

Droblyen cites the DOL publication “Meeting Your Fiduciary Responsibilities,” which enumerates a 401(k) fiduciary’s general responsibilities:

• acting only in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing them benefits;
• carrying out duties prudently;
• following plan documents that are consistent with ERISA;
• diversifying plan investments; and
• paying reasonable plan expenses.

Droblyen contends that employers can meet their fiduciary duties by taking action in the following areas.

Investment-related responsibilities. These, Droblyen says, center around choosing prudent investments that give plan participants access to a range of financial markets that will allow them to diversify their accounts, which he says is the key to meeting ERISA Section 404(c) diversification  requirements.

Administrative responsibilities. Droblyen notes that employers have “numerous” fiduciary duties, including:

• keeping the governing plan document in legal compliance; running the plan according to the plan document;
• meeting ERISA participant disclosure and government reporting requirements;
• completing plan testing and correcting failures in a timely fashion; and
• following the ERISA document retention rules for maintaining plan records.

He also noted that employers can enlist a 401(k) provider with assistance in meeting these duties.

Pay only reasonable expenses from plan assets. Keeping fees under control, says Droblyen, is “one of the most important fiduciary responsibilities” because even small excessive fee amounts now can have a significant effect on account balances in the future. He notes that a complicating factor in meeting this duty is that “reasonable” does not have a clear definition, and that the DOL suggests that it would be helpful to establish an objective process, which he says entails benchmarking fees against those charged by other providers or industry averages.

Deposit employee contributions. This must be done as soon as employee contributions can be reasonably segregated from general assets, and not later than the 15th business day of the month after that in which the contributions were withheld from wages.

ERISA fidelity bond coverage. Employers are required to have this coverage, Droblyen says, because they have discretionary authority over plan assets.

Choosing and monitoring 401(k) service providers. Droblyen argues that this function “may be the most important — and confusing” 401(k) fiduciary responsibility. He cites two reasons: (1) 401(k) plans are technically complex; and (2) the breadth, depth and price of the services 401(k) providers offer can vary widely. He suggests that employers determine the services their plan needs and use a checklist to compare providers.