What/Who is a Fiduciary?
You hear the term thrown around in the media a lot, but I haven’t seen many take the time to explore what the word fiduciary means and who can be a fiduciary.
If you are a business owner or individual that makes decisions for your company’s retirement plan, you are a fiduciary. A fiduciary is a person who exercises any discretionary authority or control over the management of a retirement plan or its assets. Examples of discretionary authority include:
- Authority in the selection and retention of plan fiduciaries
- Selecting plan investment vehicles
- Providing investment advice to plan for compensation
- Acquiring or disposing of plan assets
If you are a fiduciary you have a responsibility to act using the care, skill, and diligence that a prudent person, acting in a like capacity would use in such conduct with like objectives. Translation… If you are managing your company’s retirement plan then you are required to act in the best interests of the plan’s participants (i.e. the employees of a company).
There are two types of fiduciaries on a retirement plan – a Named Fiduciary and a Functional Fiduciary. A Named Fiduciary is the person(s) who is primarily responsible for the overall operation and administration of a company’s retirement plan. The Named Fiduciary must either be designated in the plan document or in accordance with a procedure described in the plan document. In addition, the trustee, sponsoring employer and any committee members who are appointed to manage the plan are considered Named Fiduciaries.
A Functional Fiduciary is a person who exercises control over a plan or its assets, receives compensation for services provided, but who has not been formally appointed to perform these role.
You are not considered a fiduciary if you are not specifically named as a fiduciary or do not act in a fiduciary capacity. Accountants, attorneys, consultants, and other individuals who perform purely ministerial functions within a framework of policies, interpretations, rules, practices and procedures made by other persons are not fiduciaries. However, these individuals can become fiduciaries if they take on any of the fiduciary responsibilities.
So what should you do if you just realized that you are a plan fiduciary? First, I suggest that you consult the advisor or the firm who sold you the 401(k) to learn how/if you are fulfilling the responsibilities you have as a fiduciary. Next, follow along with this series to find out how you can step up your fiduciary game. And, if you have questions that’d you rather not wait to learn the answer to, feel free to contact me directly at 913.744.3376 or by email at bwendel@smart401k.com.
Buck Wendel, Investment Advisor
June 11th, 2009 at 5:45 pm
You might also mention that anyone who is a Trustee of an estate has a Fiduciary responsibility to manage and distribute the funds in the best interest of the Trust. This is true whether or not the Trustee is receiving compensation for his efforts.