The 411 on Sponsors’ Fiduciary Role

by: , New York Life Investments

The Employee Retirement Income Security Act of 1974 (ERISA) rules apply to the fiduciaries of a broad range of employer-sponsored plans, including 401(k) plans and other defined contribution plans, defined benefit plans, and 403(b) plans. Under ERISA, plan fiduciaries are required to:

  • Act solely in the interests of participants. An ERISA fiduciary who manages a retirement plan or investments must act solely in the best interests of the plan participants (and their beneficiaries) and avoid conflicts of interest with the exclusive purpose of providing benefits to them and defraying plan expenses.
  • Carry out duties prudently. Fiduciaries must carry out their duties with the care, skill, prudence, and diligence that a person familiar with the matter at hand would use. This standard is sometimes referred to as the “prudent expert” rule. If a fiduciary doesn’t have the expertise needed to handle their responsibilities, they may need to hire professionals who have the right expertise, so that all duties are satisfied in a timely manner.
  • Diversify investments. Plan assets must be diversified to reduce the risk of large investment losses, unless under the circumstances, it is clearly prudent not to.
  • Follow the plan document. Interpreting the document and providing administrative direction is a fiduciary function. Fiduciaries must follow the terms of the plan document, insofar as they are consistent with ERISA.
  • Pay only reasonable plan expenses. Any plan expenses paid from plan assets, including investment-related expenses, must be for services that are necessary for the administration of the plan, and the fees for any expenses must be reasonable.

Document all plan-related decisions

A prudent decision-making process is central to complying with ERISA fiduciary duties. Any decisions made for a retirement plan need to be well-documented.

While different fiduciaries may make different decisions based on the same set of facts, certain procedures and documenting best practices can demonstrate a prudent process. To that end, it’s important to document plan governance procedures, outlining the various roles and responsibilities for plan oversight and administration. Identify prudent steps and timing for fulfilling those responsibilities. For example, some plans adopt an Investment Policy Statement (IPS) to document the plan’s investment objectives and the criteria that will be used to evaluate investment options, including the frequency of plan reviews.

Be ready to demonstrate compliance

  1. Keep written records of important plan decisions and the primary factors and information that formed the bases for any decisions. For example, your plan’s advisor can help you document the process you followed in evaluating and hiring service providers and monitoring their performance to demonstrate that you acted prudently.
  2. Retain copies of any reports or other information that you relied on in making plan decisions. Examples of documents to retain in the plan file include information about service providers and a copy of service agreements, invoices and fee disclosures, service provider performance reports, and any participant complaints.
  3. Meetings with a consultant or an advisor and other service providers should also be documented.
  4. Keep meeting minutes for all plan committee meetings and other significant plan decisions approved by a board of directors or other governing authority (such as authorization for plan amendments).
  5. Store copies of the meeting minutes and all collateral material with your plan document. Digital backups in a secure, cloud-based environment will brace you for things like fires or natural disasters that could cause an unexpected loss of paper documents.

As an employer and plan fiduciary, you play a key role in the success of your retirement plan. In addition to selecting investments and overseeing plan administration, you will want to monitor plan metrics to make sure the plan is meeting your overall business objectives and producing positive retirement savings outcomes for your employees. This can seem like a daunting task when the regulatory landscape is constantly changing and new retirement plan products and tools are frequently introduced to the retirement plan marketplace, but it doesn’t have to be. An experienced plan consultant and/or plan advisor can help.

This article is for educational purposes only and may not be redistributed by the recipient without prior written consent from New York Life Investment Management LLC. This communication is not intended to be an offer or solicitation of investment advisory services or products.

Neither New York Life nor its agents or affiliates provide tax, legal, investment, or accounting advice. Plan sponsors should speak to their own tax, legal, or investment advisor or accounting professional regarding their specific situation.

The information contained herein is general in nature and is provided solely for educational and informational purposes.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC

Prepared for an Institutional Audience.


New York Life Investments Retirement Institute

New York Life Investments

The New York Life Investments Retirement Institute was created to assist plan advisers and plan sponsors as they navigate today’s evolving governance landscape. The Retirement Institute’s various initiatives seek to provide expert coverage of the industry’s most impactful issues and deliver

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