How to Write an Investment Policy Statement, 2nd Edition

CHAPTER 2

YOUR FIDUCIARY RESPONSIBILITIES AND LIABILITIES UNDER ERISA

You may be the owner of a small company, a retirement plan director or an attorney who has been named as a trustee on behalf of your company’s participant-directed defined-contribution plan. As trustee, you are a named fiduciary. In addition to named fiduciaries, under ERISA there are also “deemed fiduciaries,” which include any person(s) who exercises any discretionary authority or control in management or administration of the plan or its assets. Once you understand that you are a fiduciary, the next step is to understand how to comply with your fiduciary responsibilities under ERISA.

Five Fiduciary Responsibilities

Every fiduciary, regardless of plan size, has the following five responsibilities:

1. Duty of Loyalty—To act to ensure that the plan assets are used exclusively for the benefit of the plan participants and beneficiaries; avoid conflicts of interest.

2. Duty to Diversify—To ensure that the plan offers a diversified investment menu that allows participants to minimize the risk of long-term losses. If the plan is not diversified, the fiduciary bears the burden of proof as to why it was not prudent to diversify.

3. Incur Only Reasonable Costs—Know what you are paying for in total plan expenses and how these costs compare to the market for reasonableness. You do not need to have the least expensive plan, but you do need to know what you are paying for and how those costs compare to the market.

4. Monitor ...