Know When to Hold 'Em, Know When to Fold 'Em: The High Stakes Game of Fiduciary Liability

By Jeff Robertson. Jeff Robertson is an attorney with Barran Liebman LLP, representing plan sponsors and retirement plan service providers in all areas of benefit planning. He can be reached at 503.276.2140 or jrobertson AT barran DOT com.

The area of fiduciary responsibility is beginning to remind me of one of those high stakes game of poker that are becoming increasingly popular on television. Retirement plan committee members feel the weight of a spotlight on their next move as a crowd of curious participants anxiously await whether the committee members have a hand full of aces or are simply bluffing their way through the meeting. What happens when one of the participants calls the committee's bluff and potentially costing your company and plan millions of dollars?

As with other areas of corporate governance, fiduciary liability is becoming a hot button issue in the wake of the Enron collapse. For fiduciaries, managing retirement funds has become a complex and increasingly risky business. Fiduciaries must navigate an uncertain and difficult investment environment while facing sometimes unrealistic expectations from employees and increased scrutiny from the government and class action lawyers. To make matters more complicated, many fiduciaries do not know that they are fiduciaries and that their personal assets are at risk for their actions. Every company's officers, board of directors and other fiduciaries must concern themselves with whether they properly understand their own fiduciary responsibility and take appropriate action to reduce any potential liability accordingly.

The Value of Fiduciary Education

Before anyone can effectively meet their fiduciary responsibility, they must properly understand that responsibility. We frequently find that one effective manner in which to reduce possible fiduciary liability is to undertake a professional fiduciary education program specifically tailored to a company's fiduciaries, specific plan attributes and various vendors.

The practical reality is that most cases of fiduciary liability do not involve systematic failures like Enron. Most cases involving fiduciary liability involve a failure to properly document, contract and administer a retirement plan. Simple tasks that are more a failure to understand the complex requirements than a knowing plan to cause harm to the participants. Understanding those responsibilities through professional education is a low cost method to gain insight to the constantly changing fiduciary liability world.

One frequent complaint that we hear regarding fiduciary education, is the cost and time necessary to complete such a program. Most plans have a limited amount of assets and plan sponsors are reluctant to commit significant financial and time resources to help fund this endeavor. Additionally, due to the complex and difficult nature of ERISA, most fiduciary education programs are difficult to follow and contain too much material to follow. Additionally, many fiduciary education programs are provided with a specific eye on the investments in your plan, but do not cover areas such as proper fiduciary liability insurance and proper contract and liability provisions. As a result, it is critical to find a low cost, experienced and tailored education program to meet your specific needs.

What a Fiduciary Education Program Should Include

Any fiduciary education program should include the following items:

Basics of fiduciary responsibility: Who is a fiduciary, what are the requirements?
Proper Retirement Plan Governance: How does a Retirement Committee function; how does a committee work with the company board of directors and officers?
Delegating Fiduciary Responsibility: How should you hire an investment manager to assist with investment choices and offerings; how do you choose a proper investment advisor?
Understanding Your Investments: What are the fees included with mutual fund offerings, what was the impact of the mutual fund scandal?
What Your Plan Should Contain: What are the proper levels of insurance and bonding; who are the appropriate vendors to include as part of the retirement plan team?

A proper fiduciary education program assists fiduciaries to understand their responsibilities and resulting potential liabilities relating to the retirement plan. A proper education program indicates prudence by fiduciaries to understand their requirements and attempt to actively meeting their responsibilities. Such a program is becoming increasingly critical to the rising liability concerns amongst retirement plans and their sponsors.

As the spotlight shines on your plan and its committee's decisions, we find that understanding those obligations in the face of scrutiny plays a large part in having a hand full of aces instead of a participant calling your bluff.

Other articles by Jeff Robertson: Lower Costs or Hidden Problems: The Legal Concerns for ETFs in 401k Plans, The Opportunity Cost and Fiduciary Implications of Retirement Plan Fees and When To Hire An ERISA/Employee Benefits Attorney.

###

401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com.

About | Glossary | Privacy Policy | Terms of Use | Contact Us

This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.