Your Top Five Fiduciary Responsibilities, According to DOL

Written by Smart Investor | 12 July 2010

Retirement plan fiduciaries have five top responsibilities under the Employee Retirement Income Security Act of 1974 (ERISA). Sometimes it's good to get the official viewpoint on your duties, so in this post, we expand on quotes from Meeting Your Fiduciary Responsibilities, published by the U.S. Department of Labor (DOL), Employee Benefits Security Administration.

DOL says fiduciaries’ responsibilities include

1. Duty of Loyalty (also known as the Exclusive Benefit Rule) — Requires “acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them.” This is the duty that is next-to-impossible for registered representatives— also known as brokers — to fulfill.
2. Duty of Prudence (also known as the Prudent Expert Rule) — Requires “carrying out their duties prudently." As we discussed in "Gain a Professional Partner with an Independent Fiduciary for Your 401(k) Plan," this sets a high standard of “acting with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use.” This standard doesn't make allowances for the fact that plan sponsors and their employees may not be experts on retirement plans or fiduciary duty.
3. Duty to Follow Plan Documents — Requires “following the plan documents (unless inconsistent with ERISA).” ERISA rules take precedence, so plan sponsors can't protect themselves from liability simply by following the requirements of their plan documents.
4. Duty to Diversify (also known as Duty to Avoid Large Losses) — Requires “diversifying plan investments” so as to minimize the risk of large losses, unless under the circumstances, it is clearly prudent not to do so. It is difficult to think of exceptions to the need to diversify.
5. Duty to Pay Reasonable Plan Expenses Relative to Services Provided — Requires “paying only reasonable plan expenses.” This is an area where plan sponsors often make mistakes because they're not fully aware of the expenses paid by their plans.

It's important to understand these five duties because these form the foundation of your fiduciary responsibilities.

If you'd like to learn more about any of these duties, please call me at 916-435-2100 or email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . I'd be happy to talk with you about how you can fulfill your fiduciary responsibilities.

Investment advice offered through Smart Investor, a Registered Investment Adviser.