What Is a Fiduciary? A Plan Sponsor's Guide to Retirement Plan Responsibilities
Running a small business means wearing a lot of hats. When you offer a 401(k), you make decisions that may affect how your employees save for retirement. In some situations, you may be acting as a fiduciary, which means you have certain responsibilities when making decisions about the plan, its administration, or its assets. Generally, fiduciaries must act solely in the interests of plan participants and beneficiaries when carrying out those responsibilities. That’s why understanding your role as a fiduciary matters.
While the term may sound technical, the idea behind it is simple: certain plan decisions must be made with the interests of your employees and their beneficiaries in mind. If you’re a business owner who sponsors a 401(k) or other retirement plan, you may be considered a fiduciary when performing certain functions or making certain decisions for the plan.
Let’s break down what that means for plan sponsors.
What Is a fiduciary?
In a retirement plan, a fiduciary generally means someone who exercises discretionary authority or control over the management or administration of the plan, exercises authority or control over plan assets, or has discretionary responsibility for administering the plan. Someone who provides investment advice for a fee may also be a fiduciary.
Not every decision an employer makes about a retirement plan is a fiduciary decision. Decisions to establish, amend, design, or terminate a plan generally are business decisions. However, carrying out or implementing those decisions may involve fiduciary responsibilities.
Many employer-sponsored retirement plans are governed by the Employee Retirement Income Security Act of 1974, or ERISA, which sets standards for retirement plans and helps protect plan participants and their beneficiaries.
Here’s what’s important for business owners: being a fiduciary is generally about what you do, not what your title says. If you’re responsible for certain decisions about your company’s retirement plan, you may be acting as a fiduciary.
Why does being a fiduciary matter for plan sponsors?
When you offer a retirement plan, you’re helping your employees save for something that may still be years or even decades away. The decisions made about that plan matter.
At a basic level, fiduciary responsibility means acting solely in the interest of plan participants and beneficiaries, making informed decisions, and carrying out the plan's terms consistent with applicable law.
Does that mean you’re expected to know everything about running a retirement plan? No. It also doesn’t mean every decision has to lead to a perfect outcome.
But it’s important to understand which responsibilities are yours and where you may be able to get support from qualified providers to help lighten your workload.
Who is considered a fiduciary in a retirement plan?
There’s no single answer because every retirement plan is a little different. It’s less about someone’s job title and more about what they’re responsible for.
Depending on the plan and the functions performed, fiduciaries may include:
The plan's named fiduciary
Individuals who have authority to make certain plan administration decisions
Individuals or entities responsible for managing plan assets or investment decisions
Individuals responsible for selecting or monitoring other fiduciaries or service providers
Certain service providers that take on fiduciary responsibilities
Not everyone who works with your retirement plan is automatically a fiduciary. It depends on what they’re responsible for and the authority they have.
Can a business owner be a fiduciary?
Yes. In many situations, a business owner or plan sponsor may be considered a fiduciary because they are involved in decisions that affect the retirement plan.
Think about the decisions that go into offering a 401(k). Who chooses the companies that help run the plan? Who makes certain decisions about how the plan operates? Who makes sure certain plan tasks get done?
If some of those decisions fall to you, you may be acting as a fiduciary when you make them.
That’s why understanding the term matters. It’s not about adding another title to your already-long list of responsibilities. It’s about knowing the role you may already be playing.
What are a fiduciary's responsibilities?
You could spend a lot of time digging into the details of fiduciary responsibilities. For now, let’s stick with the basics.
Depending on their role, retirement plan fiduciaries may be responsible for things like:
Acting solely in the interests of plan participants and beneficiaries
Acting for the purpose of providing benefits and paying reasonable plan expenses
Making plan decisions carefully and prudently
Following the plan's terms, consistent with applicable law
Prudently selecting and monitoring investments and service providers
Documenting the process used to make fiduciary decisions
There’s more detail to each of these tasks. For a deeper look at the responsibilities that come with overseeing a retirement plan, download our Fiduciary Playbook.
The important thing to know is that you don’t necessarily have to handle every part of running a retirement plan on your own.
Can you get help with fiduciary responsibilities?
Depending on how your plan is set up, certain fiduciary and administrative responsibilities can be assigned to service providers.
Two examples of fiduciary services are 3(16) administrative fiduciary services and 3(38) investment management.
3(16) administrative fiduciary services may take on certain responsibilities related to day-to-day administration of the plan, depending on the services outlined in your agreement.
A 3(38) investment manager assumes fiduciary responsibility for selecting, monitoring, and making changes to the plan's investment lineup.
Working with fiduciary service providers may give you support with certain responsibilities, but it doesn’t mean every responsibility goes away. What a provider takes on depends on the services and arrangement you choose. Understand how responsibilities are allocated in your plan documents and service agreements, and continue to monitor any fiduciary service providers you appoint.
Video: Understanding 3(16) administrative services
This video walks through some of the responsibilities that come with administering a 401(k), along with how 3(16) administrative services may help with certain plan tasks.
That may include things like tracking when employees become eligible for the plan, communicating eligibility requirements, signing and filing Form 5500, authorizing certain transactions, locating missing participants and supporting audit-related activities.
Frequently asked questions
What is a fiduciary in a 401(k) plan?
A fiduciary in a 401(k) plan is generally a person or organization that has responsibility for certain plan-related decisions and must act in the interests of plan participants and beneficiaries.
What does it mean to be a fiduciary?
In simple terms, a fiduciary is someone trusted with certain decisions that affect plan participants and beneficiaries and expected to put their interests first. In retirement plans, fiduciary status is often connected to decision-making authority or control over aspects of the plan.
Can a business owner be a retirement plan fiduciary?
Yes. Business owners and plan sponsors may act as fiduciaries when they perform functions or make decisions involving their retirement plan.
Are all retirement plan service providers fiduciaries?
Not necessarily. Whether a service provider acts as a fiduciary depends on the role they perform and the specific services they provide.
Can fiduciary responsibilities be delegated?
Certain responsibilities may be assigned to fiduciary service providers, depending on the plan documents, appointment, services and arrangement. However, working with a provider doesn’t necessarily remove all of a plan sponsor’s fiduciary responsibilities. The plan sponsor or appointing fiduciary retains responsibility for prudently selecting and monitoring the provider.
Want to learn more?
Take a deeper look at fiduciary responsibilities with our Fiduciary Playbook, or learn more about the fiduciary services[SP1.1] available to help support your plan.
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