Many times, an employer, as the retirement plan fiduciary, may choose investment options or a product that might not be a good fit for the employee base or that may be too heavily weighted toward a certain asset class or fund manager.

This can cause an inappropriate choice of investments, allocations that are too aggressive and, ultimately, confusion and anxiety among employees.

During a severe down market, such as today’s, this confusion and anxiety can significantly increase fiduciary concerns. But there is good news on this front.

Under the Employee Retirement Income Security Act, there are no special fiduciary duties that apply in a down or volatile market. Regardless of market conditions, a sound and documented process for making fiduciary decisions will protect plan fiduciaries, no matter what is happening with the financial markets.

However, deficient fiduciary practices are often exposed during a down or volatile market. At the very least, participant inquiries and scrutiny will increase if significant losses in plan investments occur.

As a result, fiduciaries may be accountable for showing they are not responsible for plan losses. So, fiduciaries should be prepared to show compliance with ERISA duties through adherence to a sound fiduciary process.

Who is a fiduciary? Simply stated, a fiduciary is a person who exercises discretionary authority over a company’s retirement plan management.

Often, a committee is designated to perform some or all of these functions. This is preferred because it allows for clearly delineated roles and responsibilities for administering the plan. It is also easier to create a formal process for fiduciary actions (e.g. periodic committee meetings, periodic reviews) that can be documented. Finally, an employer acting as plan fiduciary may sometimes find it difficult to meet its obligations to plan participants if the employers’ and participants’ interests conflict. Having a committee in place minimizes potential for this.

Nonetheless, in small employer situations, there is usually no committee designation. The employer is often the plan fiduciary by default.

This is not a preferred method because an employer is less likely to have the clear roles and formal processes discussed above, which makes it more difficult to document and defend fiduciary decisions. In addition, plan sponsor fiduciaries are more likely to face the conflicts discussed above, which also make their decisions harder to defend if challenged. Finally, these fiduciaries generally lack the expertise to manage a retirement plan. For example, employers often do not have the expertise to select and maintain an appropriate investment lineup.

Service providers can provide the expertise that employers lack by offering certain fiduciary services. In so doing, they foster retirement plan adoption among the small and micro employers who cannot take on the crucial role of fiduciary without expert assistance.

Individuals who act as fiduciaries and do not meet their fiduciary obligations will be held accountable. Serious consequences include personal liability to the plan for: losses resulting from a fiduciary breach, any profits made through the improper use of plan assets, other equitable or remedial relief that a court may find appropriate, and additional civil penalties.

Steps fiduciaries should take in order to fulfill plan obligations limit potential liability and provide appropriate investment options include those shown in the box.

Today, many employers would rather outsource some fiduciary responsibilities to someone they perceive to be an expert rather than try to learn about investments and develop a prudent process all on their own. In such models, the employer is still responsible for evaluating and monitoring independent service providers and independent fiduciaries. However, the shared fiduciary responsibilities reduce the small business owner’s potential liability. Many services are available today that can alleviate the employer’s responsibilities by delegating some of the duties to an independent third party.

For instance, some financial advisors and planners have become Registered Investment Advisors, allowing them more flexibility to provide investment advice and management services to plans. RIAs often contractually agree with the employer to become a fiduciary with respect to the plan.

Other service providers, such as investment consultants and ERISA attorneys, may also agree to certain fiduciary duties, especially for mid-to-larger-sized clients.

As for salespeople (e.g., brokers, registered representatives), recordkeepers, and third-party administrators, in today’s small business market, they tend to limit their duties to educational, ministerial, and administrative duties. Generally, they do not serve as a fiduciary in this market.

Today, new fiduciary solutions for small business owners are also emerging. These are coming in response to growing demand from small business owners who are increasingly concerned about fiduciary liability and so are seeking out service providers that will share in the plan’s overall fiduciary responsibilities.

For example, investment fiduciary services, packaged by insurance companies and provided to plan sponsors, are emerging in the small business market.

These services include an independent RIA who agrees to act as the plan’s investment fiduciary, review the investments offered by a retirement service provider and formulate a fiduciary investment series or subset of funds from the overall fund line up made available by the insurance company.

With this service, the RIA will choose an investment line-up and monitor and evaluate the plan’s investments for the plan sponsor. The RIA will also determine when to replace an investment with a better option. Finally, an RIA can help provide ongoing financial reports regarding the investment to help the plan sponsor document the fiduciary process and methodology.

For smaller plans, service providers have also enhanced their services by offering customized investment policy statements to compliment the fiduciary services of independent RIA. With these packaged services, the plan sponsor is effectively transferring some of its fiduciary responsibility to the independent RIA and is relying on the RIA and the service provider to assist and provide most or all of the documentation around the fiduciary process.

Once a plan has an appropriate investment line-up, the fiduciary may also decide it is necessary take measures to ensure that plan participants make appropriate selections and have an appropriate asset allocation for their accounts. This can be done through a managed account service. Here, an RIA agrees to take over or manage the accounts of the plan participants if the service is elected by the plan participant.

Managed account services provide plan participants with a resource to manage their accounts for them for a small fee. Such services include investment advice, ongoing monitoring of the investments and allocation, retirement readiness or gap analysis, re-balancing of retirement assets, and incorporation of the participant’s other retirement and savings accounts into the advice module.

By receiving a fee for the advice, the managed account service provider is agreeing to be a fiduciary to the plan. With managed account services, employers can provide their employees with access to expert investment advice and asset management services without increasing their own fiduciary obligations.

Bob Melia is vice president-product strategy for Lincoln Retirement Solutions at Lincoln Financial Group, and Abigail Pancoast is senior counsel for Lincoln Financial Group, the marketing name for Lincoln National Corporation. Both are based in Radnor, Pa. Their respective e-mail addresses are robert.melia@lfg.com and abigail.pancoast@lfg.com