Being a plan fiduciary whether you are a plan sponsor or a plan trustee is serious business. You can get into trouble for stuff that you think is rather innocuous and the reason you think it’s innocuous is probably why you don’t understand the role of a fiduciary. So here’s a basic refresher.
Being a fiduciary requires the highest duty of care in equity and law? Why? Obviously when you are responsible for someone else’s money, you have a higher duty of care than if you are responsible just for your own money. It’s like buying any type of product. If you want to overspend for a product with your own money, that’s OK. When you’re spending someone else’s money, that’s not.
If you have money saved away and you want to hire a broker who is going to put you in an investment that is has a high expense ratio and nets the broker a bigger trail than anything else, that’s your problem. However, when you are holding the retirement plan assets of your employees, you need to make sure whether the investment is prudent and whether the fees are reasonable.
If you hire an incompetent professional to handle your matters, you can easily sue the professional for malpractice. When you hire an incompetent professional to handle your retirement plan, you can be sued too because you had the fiduciary responsibility to hire competent plan providers.
I have heard of so many plan fiduciaries complain that they are responsible for the mistakes of their plan providers or for paying too much in plan expenses, but that’s the nature of the role. It’s like being a parent and complaining you have to change diapers. You take on the job, you do the job and when it comes to being a fiduciary, you need to make sure you are doing a competent job.
That’s the role of being a fiduciary and it can’t get more basic than that.