Fiduciary Essentials: Are You at Risk?

Assets in retirement plans represent the bulk if not the entirety of employees’ life savings. It is a moral duty to be a good steward of these assets.


All ERISA plans, including all qualified retirement plans such as 401(k), 403(b) and profit sharing plans have fiduciaries. An individual or entity may become a fiduciary by agreement such as when named by the plan or named as a fiduciary in a service contract (a named fiduciary). An individual or entity may also be a fiduciary simply on account of the function the individual or entity performs (a functional fiduciary). Anyone who has the power to exercise control or discretion over a plan is a fiduciary. The trustee of a retirement plan is always a fiduciary to theplan and is ultimately responsible for everything.

Why this is important: First, assets in retirement plans represent the bulk if not the entirety of employees’ life savings. It is a moral duty to be a good steward of these assets. Even if the moral duty imperative is rejected, it is alegal one. Fiduciaries are held to the standard of a prudent expert and must always govern their plans in the best interest of employees. This is the highest standard of governance under the law and duties that are neglected may result in substantial personal liability. If a fiduciary does not have the expertise required to meet the standard then it is required of the fiduciary to seek the expertise from a qualified professional. Qualified fiduciaries may share or fully assume the liability otherwise assumed by the Plan Sponsor.

What happens when the fiduciary role is neglected? Let’s take a look at a few recent court cases that are illustrative of common fiduciary failures and the consequences.

5/21/2020 — Employees of the Banner Health 401(k) Plan alleged that the Plan Sponsor mismanaged the plan and requested $85 million as restoration. Following an expensive 8-day trial, Federal Judge William Martinez found in favor of the employees and awarded workers $2.3 million.

What did Banner do wrong? The judge found that Banner breached its duties by allowing the plan to pay excessive administrative fees and failing to monitor the performance of plan fiduciaries. The judge found it “highly significant” that Banner went many years without soliciting competitive bids for recordkeeping services through a formal request for proposal. And he agreed with plan participants that the plan’s record-keeping arrangement — in which the plan paid uncapped, asset-based fees to Fidelity through a contract with no termination date — was imprudent.

Lesson: If fiduciaries neglect their duties and it costs participants money, the Plan fiduciaries will be liable to make up the loss. Plan fiduciaries must pay no more than reasonable costs, reasonable to be determined by a periodic Request for Proposal (RFP) process. A best practice is to conduct an RFP for service providers every three to four years. Plan fiduciaries must monitor performance of its investments and its service providers. A best practice is to conduct a performance review two to four times per year depending upon the Plan’s size. Minutes of these meetings should be written and retained documenting the topics addressed and the rationale for making a change or not.

Reported by Manganaro, John. (2020). Plan Sponsor NEWSDash May 27, 2020. Banner Health ERISA litigation reaches mixed ruling. Retrieved from

5/13/2020 — A week earlier, employees of Aegis Media Americas filed a class action lawsuit alleging that the firm has permitted excessive fees to be levied on participants within its retirement plan: Kennedy v. Aegis Media Americas, Inc. Specifically, the suit alleges that:

1) defendants did not try to reduce the plan’s expenses or exercise appropriate judgement to ensure each investment option was prudent, that

2) despite the availability of identical or similar investment options with lower costs and/or better performance histories, fiduciaries neglected to make the changes needed to take advantage of the opportunity, and

3) that the history of the plan supports the contention that no prudent fiduciary monitoring process was in place.

Lesson: A plan should have an investment policy statement sufficiently clear to document the fund selection and monitoring standards to be met. A Plan Sponsor should conduct regular performance review meetings where adherence to the Investment Policy Statement is documented. Various record-keepers, mutual fund companies and other Plan Sponsors of 401(k) Plans – ADP, MFS, Goldman Sachs, Fidelity, Principal, Transamerica, Insperity, American Century, Franklin Templeton, MassMutual, Edward-Jones, BB&T, T. Rowe Price, JP Morgan, Voya, Capital Group, TIAA, Putnam, Morgan Stanley, Neuberger Berman, and Empower among many others have all been sued by their employees over issues similar to the above two cases.

You may conclude from this that failure to appropriately monitor performance and costs is widespread and that plan sponsors are at risk for defending themselves in court and possibly restoring participant losses. Lesson: Good plan governance is a wise investment. Since most Plan Sponsors do not possess the skills or have the time to devote to all the requirements to meet the fiduciary standard, it makes sense to hire a professional to assist.

How do you prudently select a professional financial advisor to assist with plan management? It is now common for financial advisors to agree to be a fiduciary. But agreement to be a fiduciary can be offered by almost anyone. Agreeing to be a co-fiduciary alone does not protect a Plan Sponsor very well as the Plan Sponsor is still responsible ultimately for everything. FI360 is a non-profit organization dedicated to defining the fiduciary standard and establishing best practices for professional advisors. FI360 has created a curriculum for training and a certification called Accredited Investment Fiduciary (AIF®) for those who qualify. You could consider the AIF® a minimum standard as those who hold this credential at least know what the fiduciary standard is and the best practices to follow.

The Centre for Fiduciary Excellence is a non-profit organization engaged in the practice of auditing retirement plan professionals to determine how well the audited firm is following all 21 best practices for Investment Advisors. The audit is conducted by an independent attorney or other independent competent professional. If the auditor determines that all 21 best practices are being followed on all accounts selected for audit and memorialized in writing, the CEFEX designation is awarded. Audits are annual. The CEFEX designation certifies adherence to the FI360 curriculum. It is a very high bar. At this writing there are only 137 retirement plan advisors in the nation certified. You can get more info at



ROBERT RECCHIA is a CEFEX-Certified Investment Advisor Representative offering investment advisory services through Pensionmark Financial Group, LLC. Reach Bob at: bobr@ccretirements. com