Three tips to help avoid becoming an accidental fiduciary

Who’s a fiduciary?

You’re a fiduciary if you can check either of the following two boxes:

1. You have discretionary authority to administer the retirement plan or plan assets (e.g., written in the plan document)
2. You exercise discretionary authority to administer the plan or control plan assets, even if you’re not given this responsibility in writing¹

Many TPAs purposefully choose to take on fiduciary responsibilities by being the ERISA Section 3(16) plan administrator. In this role, you’d have discretionary authority to administer the retirement plan or plan assets in writing. 

TPAs who have discretionary authority to administer the plan or control plan assets are likely aware of their fiduciary status, which is detailed in the plan document, service agreement, or other paperwork and signed off on by all parties. It’s not very common for someone to have these authorities and not know it.

Exercising discretion over the plan’s administration can be different. TPAs who aren’t written into the plan document as a fiduciary can still exercise discretion (and be considered a fiduciary as a result). It’s one thing to take that action knowingly, but what about those who don’t know they’re exercising the authority of a fiduciary?

If you act like a fiduciary, whether you intend to or not, you likely are one in the eyes of the U.S. Department of Labor. Your actions (exercising discretionary authority) can override your words (saying you’re not a fiduciary).

What makes someone an accidental fiduciary?

An “accidental fiduciary,” as the name implies, is someone who becomes a fiduciary without their knowledge or intent. This generally eliminates the first type of fiduciary above—it’s hard to be a fiduciary by accident if you read and signed off on an agreement stating that you are a fiduciary to the plan.

Because superior customer service is one of many things that make you successful as a TPA, you may take initiative to help your plan sponsor clients, for example, not miss a deadline or make plan operations run more smoothly. But how do you know if what you’re doing can make you a fiduciary?

ERISA doesn’t provide a specific list of services or duties that consider someone a fiduciary, which can make this determination challenging. Think about some common “good customer service” situations you may find yourself in that may make you a fiduciary, such as:

• You write checks to send to participants, or authorize plan distributions, without having a delegation of signing authority from the plan sponsor or a direction from the plan sponsor. (In this case, you’re controlling plan assets.)
• The plan sponsor put together the Form 5500 but forgot to sign and file it before going on vacation, so you take it upon yourself to do it so that your client doesn't miss the deadline. (In this case, you may have just acted as the plan administrator, which is a type of fiduciary.)

Three tips to help avoid becoming an accidental fiduciary

If you’re not a fiduciary and you want to keep it that way, we have a few tips that may help limit your exposure to this liability.

1 Be clear and consistent in your paperwork

Work with a legal professional to ensure all documents:

• Identify who has fiduciary responsibilities in running the retirement program and make it clear that you’re not one of them. Don’t take on labels such as the plan administrator if you don’t plan to do the work of one—you’ll still be considered a fiduciary.
• Specify the services you’ll provide after confirming that none of them require fiduciary discretion. Consider getting insurance and putting liability limitations in your agreements for your administrative, non-fiduciary errors (an agreement can’t limit a fiduciary’s liability for breaches of fiduciary duty).

If you’re not a fiduciary in any of your agreements, then you’ll likely only need to focus on not exercising authority.

2 Don’t handle plan assets

This one may be easier to identify in practice. Are you moving the plan’s assets around in any way, including writing checks or authorizing plan distributions without delegation or direction from the plan sponsor? Are you authorizing payments to plan providers from plan assets? Consider erring on the side of caution and not handling plan assets, unless the plan sponsor has either delegated authority to you or directed you to do so.

3 Implement strong internal processes

Create a process for your client-facing team to follow when they’re either asked to or think that they should do something outside their normal responsibilities. This may include documenting the specific request, knowing who should review it, and determining how it’ll be approved or denied. Adding these extra steps may slow down your response time, so consider developing an efficient and repeatable plan to help minimize the disruption to your service. Performing these reviews may save you from inadvertently doing something that makes you a fiduciary when you don’t want to be.

Avoiding fiduciary responsibilities

Being a fiduciary (or not) can be a gray area without a defined list of services that make you one. 

Consult with your legal counsel to confirm that you don’t have fiduciary responsibilities and authorities in writing, but it’s up to you to ensure you don’t exercise the discretion of a fiduciary, whether you’re labeled one or not.

1 "The Accidental Fiduciary," Ferenczy Benefits Law Center, 2022.