A 401(k) plan fiduciary is someone who manages the 401(k) plan and its financial assets for its participants. Within a company, there is often more than one fiduciary. If you’re offering your employees a 401(k) plan or are involved in making plan decisions, then you are most likely a fiduciary. And if you are, you have certain responsibilities by law.

The sponsor of a qualified retirement plan such as a 401(k) plan is charged with several legal duties under the Employee Retirement Income Security Act of 1974 (ERISA). A critical duty is the sponsor's legal obligation to select, monitor and, if necessary, replace the plan's investment options. This duty is so central to any ERISA-qualified retirement plan that its breach is often pleaded in the recent court cases filed against plan sponsors involving plan investment options bearing costs that are not reasonable. The appropriate fiduciary of a plan must (affirmatively) find costs to be reasonable in order to justify their expenditure for the corresponding services rendered.

Drawbacks for Fiduciaries

It's a cruel irony: non-fiduciaries (AKA plan providers) have the power to keep fiduciaries (AKA plan sponsors) from performing the job they're required to do prudently under ERISA. This irony is cruel because it leads to the creation of retirement plans that feature investment options rife with high (and hidden) costs and risks that are entirely unnecessary. That helps in placing plan participants behind the eight ball in terms of having enough money for a comfortable retirement.

The fact that the selection/monitoring/replacing functions involving a retirement plan's investment options are at the very heart of much of current ERISA litigation should alert advisors, plan sponsors and others of the central role these functions play in a plan. This fact should also alert plan sponsors to the significance of the added protection afforded them when they retain an advisor willing to assume, in writing, such functions as a fiduciary.

Traps 401(k) Plan Fiduciaries Should Avoid

Below is a list of seven fiduciary traps to avoid that could lead to plan issues, Department of Labor (DOL) audit problems or potential litigation:

Trap 1: The plan’s recordkeeper drives the plan decisions

Ensure the setup and operations of the plan match what you want as the plan sponsor and what is best for the plan and participants. Many recordkeepers look to drive decisions with respect to investments and education, and it may not always be in the best interest of the plan.

Trap 2: A lackadaisical approach to understanding the plan fees

Fee disclosure requirements are still required by providers of the plan. Therefore, it’s still a function of the plan committee to ensure they are understood and reasonable. Most lawsuits around retirement plans still stem from excessive fees. It remains important that plan fees are reviewed annually.

Trap 3: Not having and executing on the Investment Policy Statement (IPS)

Many plans have an IPS these days, but many may not be following the terms of the IPS. The IPS should be reviewed annually to ensure the plan committee understands the provisions of the policy statement and are following its terms.

Trap 4: Having an ineffective plan investment committee

Plan investment committees keep evolving and may need to be adjusted as a plan grows and changes. It’s important to ensure the structure of the committee is still effective and proper training is periodically conducted for the committee members.

Trap 5: Fund lineup creep

Having a “set it and forget it” strategy when it comes to the plan’s investment funds can be dangerous for the plan committee. Where the responsibility of plan committees continues to grow, conducting a detailed investment review continues to be one of the committee’s top priorities.

Trap 6: Not understanding the defined contribution plan’s security protocols

Cybersecurity continues to be an issue across companies, and 401(k) plans are not immune. The DOL has recently come out with tips on how 401(k) plans can best manage their oversight with respect to cybersecurity. This must be part of the plan’s committee responsibilities.

Trap 7: Having sloppy documentation (or no documentation) around plan decision making

No matter what topics are discussed during a plan committee review, it’s most important that good, clear documentation is taken and saved in the plan’s fiduciary file. Being able to show that a committee is discussing all the important factors around their plan can go a long way.

While this may seem like a lot to keep in mind, the good news is that you don’t have to do it alone. Talk to a Wealth Enhancement Group advisor to find out more about how you and your business may benefit from working with a Registered Investment Advisor fiduciary.


This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Brian Gregov is located in our Warren, NJ office and is not affiliated with LPL Financial.

Brian Gregov

Brian Gregov

Director, Retirement Plan Consulting

CPFA, AIF®, QKA Brian leads a highly qualified team and oversees the retirement plan governance and fiduciary responsibilities for his clients, along with their administration, operations and design. He has more than 20 years of broad experience working in retirement solutions, including managing plans for large, multi-hundred-million-dollar corporations as well as small businesses. Brian supports his clients by designing customized retirement plans that are focused on specific goals and...Read More