Overview
Employer-sponsored retirement plans require ongoing oversight to protect participant assets and meet fiduciary duties. When investment performance declines or fees remain high, plan fiduciaries must document decisions and take reasonable steps to address problems. This guide explains practical steps fiduciaries can take to reduce risk and help participants retain confidence in their plan.
Key takeaways
- Fiduciaries must act prudently, document decisions, and monitor plan investments and expenses.
- Use qualified outside experts for administration, investment selection, and benchmarking when needed.
- Annual reviews, a written investment policy, and clear participant communication help demonstrate due care.
How it works
Fiduciary responsibility centers on acting in the best interests of plan participants and beneficiaries. That typically means selecting plan options that are prudent and cost-effective, monitoring third-party service providers, and documenting the rationale for decisions. When questions arise about coverage for fiduciary exposures, plan sponsors can learn more about protection options such as Fiduciary Liability Insurance.
Regular benchmarking of fees and services helps identify underperforming investments or excessive costs. Engaging independent consultants or ERISA-experienced advisors is a common practice to add expertise and an objective review of plan operations.
What it may cover (and what it may not)
Plan oversight activities include reviewing investment performance, ensuring fee reasonableness, maintaining plan documentation, and communicating with participants. Insurance products and professional services can cover wrongful acts related to fiduciary decision-making and errors in plan administration.
Not everything is covered by insurance or plan processes: participant investment losses from market declines are generally not recoverable simply because a plan underperformed, and fiduciaries cannot rely solely on past practices without up-to-date reviews and documentation.
Common mistakes to avoid
- Failing to document the decision-making process or the basis for investment selection.
- Not conducting periodic fee and performance benchmarking against comparable plans.
- Relying on a single vendor’s reports without independent review.
- Neglecting participant education and clear communication about investment choices and fees.
Questions to ask an agent
When discussing plan protection and fiduciary support, ask what types of claims and administrative errors are covered and whether defense costs are included. Ask how limits apply to multiple plans or administrators and whether the policy covers breach-of-fiduciary-duty investigations.
Also confirm the insurer’s experience with employee benefit plans and whether additional services—such as risk management guidance or sample plan procedures—are available through the carrier or broker network.
Next steps
Start by scheduling an annual plan review that includes investment performance, fee benchmarking, and documentation checks. Consider engaging outside experts for investment selection and compliance reviews, and periodically update your investment policy statement to reflect current objectives and processes.
For guidance on plan-level exposure and how insurance and consulting resources can help, review relevant resources such as Fiduciary Liability and Employee Benefits and Understanding Fiduciary Liability and Estate Planning. If you want to discuss options with a broker or request a quote, you can talk to an agent to review your plan's needs.
Frequently Asked Questions
Who is considered a fiduciary for a company retirement plan?
Individuals or committees who exercise discretionary control over plan management, investments, or administration are typically considered fiduciaries under federal rules.
How often should plan investments and fees be reviewed?
Plan sponsors should conduct a formal review at least annually and more frequently if there are performance concerns or changes in plan providers.
Can insurance cover participant losses from market downturns?
Insurance may cover alleged breaches of fiduciary duty or administration errors, but it generally does not guarantee investment performance or cover normal market losses.
When should a plan sponsor hire outside experts?
Hire outside advisors when fiduciaries lack specialized experience in investments, compliance, or fee benchmarking, or when an objective third-party review would strengthen documentation.