Case of the Week: New Year’s Resolution — Conduct a Fiduciary Review

The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Massachusetts is representative of a common inquiry regarding how to limit fiduciary liability. The advisor asked:

“Can you suggest any fiduciary risk management strategies that I can share with my plan sponsor clients?”

Highlights of Discussion

As you know, the Employee Retirement Income Security Act of 1974 (ERISA) requires plan fiduciaries to act solely in the interest of plan participants and beneficiaries, with the exclusive purpose of protecting retirement benefits and defraying reasonable expenses for plan administration. If plan sponsors and other fiduciaries fail to fulfill their responsibilities, they can be held personally liable for any losses the plan may incur and could face civil and criminal penalties.

Fortunately, there are ways for plan sponsors to reduce or mitigate their fiduciary liability. Some strategies plan sponsors may want to consider include:

• Identifying all fiduciaries for the plan and documenting their roles and responsibilities
• Reviewing plan documents regularly to ensure they are in compliance with all laws and regulations
• Reviewing all plan and service provider documents and contracts regularly to ensure fees paid are reasonable for the services the plan receives
• Reviewing plan administration procedures regularly to ensure they follow the terms of the plan document, laws and regulations (e.g., participant notices, fee disclosure, etc.)
• Using an Investment Policy Statement
• Regularly evaluating all investment options
• Complying with the provisions of ERISA Sec. 404(c)
• Including a qualified default investment alternative in the plan’s investment menu
• Purchasing an ERISA Fidelity Bond Purchasing fiduciary liability insurance

All of the above strategies should be elements of a regular and ongoing fiduciary review process.


Establishing a regular and ongoing fiduciary review process can be invaluable to a plan sponsor and other plan fiduciaries. Financial advisors who understand the value of a fiduciary review process set themselves apart from the average advisor and are better positioned to support their clients.

The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.

Add Your Comments

One Comment

  1. James Holland
    Posted January 9, 2013 at 12:08 pm | Permalink

    ERISA is a very complicated space for all parties involved. I would strongly encourage any adviser in the space or planning to get in the space. Partner with an Independent Fiduciary consultant. The vast majority of Plan Sponsor do not fully understand the responsibilities and liabilities of offering a Retirement Plan. While the Investments are an important piece they are merely a piece of the puzzle. If you as the adviser can bring a team of qualified , un-conflicted professionals to the table to assist the Responsible Plan Fiduciaries you increase your credibility and strengthen the relationship. It will in turn , reduce or remove the labor from Plan Sponsor ( 100-200 hrs a yr.) reduce the Liability, make the plan more cost effective which in turn will make the plan better for participants enhancing their experience and increasing their chances to achieve their retirement goals. ERISA is a Team sport make sure you have yours in place, those who choose to go it alone will find themselves on the outside looking in.

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