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Fiduciary Best Practices

The term “fiduciary” is derived from the Latin term for “faith” or “trust.”

A fiduciary is a person or institution given the power to act on behalf of another in situations that require great trust and faith. As a fiduciary you are required to act in the best interest of your plan and must set aside your personal motives in favor of the plan’s goals. As a fiduciary you are required to prudently manage investment decisions and if you do not have expertise in a particular area you should seek assistance from outside professionals.

Therefore, being a fiduciary should not be taken lightly. It is important that you are aware of your responsibilities.

Consider the following actions that will better help you meet your fiduciary duties:

  • Be aware of your fiduciary responsibilities by understanding ERISA and/or other applicable legislation. Fiduciaries can be exposed to personal liability for failure to carry out their duties.
  • Implement an investment charter to help committee members understand their roles and become fully aware of their duties as fiduciaries.
  • Establish a formal investment policy statement and carry out the duties outlined in it. This formalizes the investment process by creating goals and objectives.
  • Review fiduciary liability insurance and understand the level and type of coverage it provides.
  • Document adherence to your fiduciary responsibilities by having regularly scheduled meetings, maintaining meeting minutes, and applicable investment reports.
  • Review investment performance against the appropriate indexes and/or benchmarks from an independent third party.
  • For participant-directed plans ensure that a broad range of investment alternatives are available and take into account the diversification of the plan’s assets. For trustee-directed plans ensure the asset allocation strategy is consistent with the long-term objectives of the plan.
  • Create a process to monitor and assess the “reasonableness” of plan fees and expenses. Essentially, understand the parties being paid by your plan, what amount is being paid for these services, and determine whether these costs are reasonable.
  • Ensure compliance with applicable laws and regulations such as 5500 filings and plan audits.

By being aware of your responsibilities and following these “Best Practices” you are on the road to being a more prudent fiduciary as well as protecting yourself from liabilities that may occur. Remember you can be held personally liable and can be sued by your participants if they feel you are not looking out for their best interests.