Managing 401(k) fiduciary risk: plan sponsor best practices

If you're a sponsor of a 401(k) plan or have discretion regarding the administration, management, or investments of the plan, you’re probably a fiduciary. As a fiduciary, you may be personally liable or co-liable for losses resulting from acts that violate the ERISA. However, you may be able to protect yourself by following some best-practice guidelines for meeting your fiduciary responsibilities.

401(k) plan fiduciary essentials

In order to reduce fiduciary risk, every plan sponsor should consider having the following in place:

  • Fiduciary warranties, which provide assurance from an advisor or investment provider that investments were selected in accordance with the Employee Retirement Income Security Act of 1974 (ERISA)
  • Fiduciary insurance, which covers liability arising from a breach of fiduciary duty and should be purchased by the plan sponsor or the fiduciaries themselves
  • A plan committee, which comprises designated fiduciaries who share responsibility for plan management, governance, and administration, as well as investment oversight. The committee’s deliberations should be documented, including the minutes of every meeting, to provide proof of a prudent process. Members should be diverse, drawn from different parts of the business, and should understand their fiduciary duties and associated liabilities.

401(k)  plan due diligence documentation

Even a well-governed plan managed by prudent fiduciaries can be the target of the U.S. Department of Labor (DOL)/IRS audits or ERISA litigation, so being prepared with evidence of fiduciary prudence is imperative in the event of a regulatory audit or lawsuit.

That’s why it’s important to document all meetings and keep a file of important plan information.

Your file should include:

  • Plan information—Such as committee meeting minutes, committee charter details, a plan document, a trust agreement, an investment policy statement, Form 5500 filings, and annual compliance testing results
  • Service provider information—Such as 408[b][2] disclosures, service and fee agreements, and request for information or requuest for proposal documents
  • Participant communicationSuch as 404[a][5] participant fee disclosure, as well as summary plan description, summary annual report, and qualified default investment notices 

Having a strong process is key for retirement plan sponsors

In this era of heightened fiduciary scrutiny, you need to be well informed and well prepared to meet all your fiduciary duties. Failure to do so may subject you to liability. Good plan governance and documentation can help provide you the protection you need.

The guidelines provided, while helpful, do not constitute legal advice and should not be solely relied on. To be certain that you’re complying with your fiduciary responsibilities, follow up with your legal counsel.

For more information, please visit the U.S. Department of Labor’s dedicated fiduciary website at

The content of this presentation is for general information only and is believed to be accurate and reliable as of presentation date, but may be subject to change. It is not intended to provide investment, tax, or legal advice.  Please consult your own independent advisor as to any investment, tax, or legal statements made here.


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