Serving as a trustee of an Employee Retirement Income Security Act (ERISA)-sponsored retirement plan or as part of an investment committee that acts as a fiduciary is an important responsibility. You agree to preserve the assets entrusted to you on behalf of the plan participants and beneficiaries you represent. The legal requirements expected of most fiduciaries are, in many ways, the same as those of prudent investment professionals. In other words, fiduciaries are expected to make fund-management decisions with the same professionalism as a prudent expert.

Who can be a fiduciary?

A fiduciary is a person, company or association that acts in a capacity of trust and is therefore held to higher standards with respect to plan-related actions. A fiduciary can be an entity that holds in trust such assets as qualified retirement plans, endowments and other institutional investments. An investment fiduciary is responsible for investing the money wisely for the beneficiary’s benefit. It’s quite common to have trustees of retirement plans and board members of foundations in the fiduciary roles. However, business owners, company presidents, principal shareholders, corporate officers and corporate trustees of institutional funds may also have fiduciary status.

What is the role of a fiduciary?

Generally, you are a fiduciary if you control plan assets or provide investment advice for a fee. Some fiduciaries are fiduciaries only for certain actions, such as selecting investment managers for the plan. Under ERISA guidelines, there are five general standards of fiduciary conduct. As a fiduciary, you are responsible for ensuring that:

Employee benefit plans exist solely to serve the interests of the participants and beneficiaries.

The funds inside employee benefit plans are used only to provide benefits to participants and their beneficiaries and to defray reasonable plan-administration expenses.

Employee benefit plans are discharged in accordance with written instruments and documents that should include written investment objectives. You have the right to rely on professionals to help you through this process.

Investment duties are fulfilled with the care, skill, prudence and diligence of an expert familiar with such matters. You must consider all the facts and circumstances that are relevant to the plan’s investment objectives.

Investments are diversified to minimize the risk of large losses unless it is clearly prudent not to do so under the circumstances.

As a fiduciary, if I allow participant-directed accounts, does this eliminate my fiduciary responsibilities?

You and the plan sponsor will always have fiduciary responsibilities. However, section404(c) of ERISA states that if a participant exercises control over assets in his or her account, a participant is not considered a fiduciary by reason of that control, and no other fiduciary can be held responsible for losses resulting from that control. In order to rely on section 404(c), note that certain disclosure and other requirements must be met and that the plan sponsor and other fiduciary will still be responsible for the investment options made available in a plan.

What is a corporate trustee, and when should I consider one?

A corporate trustee is a financial institution that performs the duties and fulfills the responsibilities described in the plan document and trust agreement. Through its banking and trust affiliates, Wells Fargo Advisors offers different levels of corporate trust services.

This article was written by Wells Fargo Advisors and provided courtesy of Scott Hunter, Senior Vice President – Investment Officer and Greg Wright – Financial Advisor in Albany, Georgia at 229-436-0501.  For information on other topics or how we help clients go to www.scotthunter.net 

Wells Fargo Advisors does not provide legal or tax advice. Be sure to consult with your tax and legal advisors before taking any action that could have tax consequences. 

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