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Fiduciary

6 Duties Every 401(k) Plan Fiduciary Must Maintain


Fiduciary, from the Latin fiducia meaning “trust,” is an ethical or legal relationship between two or more parties where the party or parties designated as the fiduciary act solely for the benefit of the beneficiaries and their dependents. When a 401(k) plan is established, the fiduciaries are named in the written plan. Because a fiduciary is defined by the functions performed on behalf of the plan, a fiduciary can be anyone who has any administrative discretion with the plan, including trustees, advisors, business owners, etc.

In executing their duties, there are basic responsibilities to plan participants and their beneficiaries that a fiduciary must uphold, including:

  • Suppressing their own interests and acting for the benefit of the participants and their beneficiaries

  • Acting for the express purpose of providing benefits to participants and their beneficiaries

  • Carrying out duties with care, skill, prudence and diligence

  • Following the plan documents

  • Safeguarding plan investments through diversification and portfolio management

  • Ensuring that plan expenses are reasonable

Much of the fiduciary duty revolves around managing the plan in a judicious manner, including being an expert in many areas. As a result, many fiduciaries seek the expertise of outside professionals to manage specific aspects of the plan, including investments. When making any plan decisions, including selecting advisors, it is prudent to document the decision-making process as it is ultimately the responsibility of the fiduciary to ensure that the outsourced advisor is acting in the best interest of the participants and their dependents.

For additional information on fiduciary responsibilities, the U.S. Department of Labor has an extensive guide, Meeting Your Fiduciary Responsibilities, available for download in PDF form from their website.

The material contained in this document is for informational purposes only and is current as of the date of publication. CompuPay is not a tax, legal or financial advisor and makes no claims as such. For tax, financial or legal advice, please consult a professional.

 

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