What is a fiduciary?
A fiduciary is someone the law requires to act in another party's best interest - here, the participants in your retirement plan. ERISA established a strict fiduciary standard for employer-sponsored plans in 1974, and it remains one of the most rigorous standards in American law.
This is not a "suitability" standard, which merely asks whether a recommendation is appropriate. The fiduciary standard requires every decision to be made in the exclusive best interest of participants. Fees must be reasonable. Investments must be prudent. The process must be documented. And it's ongoing and active - not a one-time designation you can set and forget.
The part owners most often miss: if you're a named fiduciary, you are personally liable. Your corporation does not absorb it. You do.
Who counts as a fiduciary?
ERISA defines fiduciaries by function, not by title. Anyone who exercises discretionary control over plan management, plan assets, or investment advice to the plan is a fiduciary - whether or not they realize it. That usually includes:
1
The plan sponsor
The company that establishes and maintains the plan is a fiduciary, and the owner or officers who make plan decisions are personally named.
2
The plan administrator
Whoever manages plan operations - often a CFO, HR director, or office manager - is a named fiduciary carrying personal liability.
3
Advisors with discretion
Any advisor with discretionary control over plan investments is a fiduciary. Those who only make non-discretionary recommendations may fall under a different standard.
4
Trustees
If your plan has named trustees, they hold fiduciary responsibility for the assets they control.
The four core fiduciary duties
ERISA sets four duties every fiduciary must meet. These aren't aspirational - they're legal obligations with personal liability attached.
1
Loyalty
Every decision must be made solely in the interest of participants and beneficiaries. Your interests as employer - and your providers' interests - are legally subordinate.
2
Prudence
You must act with the care and skill a "prudent expert" would use. Ignorance is no defense - you're expected to have the expertise or hire someone who does.
3
Diversification
Plan assets must be diversified to minimize the risk of large losses, unless it is clearly prudent not to under the circumstances.
4
Following plan documents
Fiduciaries must act in accordance with the governing plan documents - provided those documents themselves comply with ERISA.
Advisor types: 3(21) vs. 3(38)
Not every advisor is a fiduciary - and among those who are, how much responsibility they accept varies widely. The difference directly affects your personal exposure.
Non-fiduciary
Broker / salesperson
Held to Reg BI's "best interest" standard - transaction-focused, with no ongoing duty to monitor. You keep full fiduciary responsibility. Often commission-paid.
ERISA 3(21)
Advisory fiduciary
Gives investment advice under a fiduciary standard. Recommends investments; you keep final authority and stay the decision-maker. This is the role we serve in.
ERISA 3(38)
Investment manager
Takes full discretionary control of investment decisions. You're relieved of selection liability - though you still must prudently select and monitor the 3(38) manager.
Most owner-led plans are well served by a 3(21) relationship: fiduciary-standard advice and a documented process, while the owner stays informed and keeps final say.
Red flags that signal exposure
These are what we most often find on a first plan review. Each one is real liability sitting with the plan's fiduciaries right now.
No annual review documentation. If the fiduciary process isn't written down, it didn't happen in the eyes of the DOL.
Fees never benchmarked. "Reasonable" has to be demonstrable. "We've always used them" is not documentation.
No investment policy statement. The IPS sets the criteria for selecting and replacing funds. Without one, decisions look arbitrary.
No named fiduciary advisor. If no one has formally accepted responsibility for the menu, the sponsor carries the full weight alone.
Undisclosed revenue sharing. Providers may be paid by fund companies in ways that aren't fully disclosed - a prohibited-transaction risk.
Underperformers with no documented review. Poor funds aren't automatically a violation. Poor funds with no process for evaluating them are.
The documentation that protects you
In a DOL audit, documentation is everything. These are the records that protect you - and the gaps we most commonly find on review.
Annual documentation
Written annual review minutes with investment decisions recorded
Investment performance reports with benchmark comparisons
Service provider monitoring documentation
Ongoing documents
Fee benchmarking report comparing plan costs to comparable plans
Investment policy statement, kept current
Fiduciary advisor agreement with formal acceptance of status
Plan document and summary plan description, current with all amendments
Service provider contracts and 408(b)(2) fee disclosures
Fidelity bond covering at least 10% of plan assets, as ERISA requires
