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Regulation and Compliance > Federal Regulation > DOL

A checklist of 401(k) fiduciary responsibilities

By Chris Carosa

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Here’s the basic idea. If you’re a fiduciary, there’s one simple rule. Follow this rule and you’ll never go wrong. Stray from this rule into gray areas, and things can get a bit complex. If you outright shun this rule, then regulators will soon come pounding on your door and having a good attorney in your rolodex may be called for. Here’s the rule: Always act solely in the best interests of the plan beneficiaries.

Now, here’s the tricky part. The world of the fiduciary should not be confused with the world of business. In the business world, companies often succeed by adopting the motto “The customer is always right.” Here’s where the confusion comes in. Some good-hearted folks tend to like the 401(k) beneficiary (usually the “plan participant” or “employee”) to “customers.” This leads to confusion as to what their fiduciary duty entails. Unfortunately, they can find “acting solely in the best interests of the plan beneficiaries” does not mean the same thing as “the customer is always right.”

See also: Does fiduciary coverage for rollovers lie ahead?

Quite frankly, what beneficiaries want may not necessarily be in their best interests. 

This can be a hard concept to grasp, and even professionals can be tripped up by “the customer is always right” problem. 

Since the DOL is generally a benevolent organization and only seeks to ensure plan sponsors do what’s best for employees, they’ve made being a fiduciary quite easy. They’ve actually created lists to help the 401(k) plan sponsor (for one such list, see “5 Fiduciary Facts the DOL Wants Every 401k Plan Sponsor to Know,” FiduciaryNews.com, April 2, 2013). They’ve even provided a quick and easy checklist of the basic responsibilities of the 401(k) fiduciary.

Here’s what the DOL says anyone acting in the capacity as a fiduciary for a 401(k) plan should do:

  • Act solely in the interest of the participants and their beneficiaries;
  • Act for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;
  • Carry out duties with the care, skill, prudence and diligence of a prudent person familiar with such matters;
  • Follow the plan documents; and
  • Diversify plan investments.

Now, here’s what troubles so many people. The DOL doesn’t exactly say how to meet any of those responsibilities. For example, in diversifying plan investments, does that mean offering a variety of choices each of which satisfies a different type of plan beneficiary? Or does it mean offering a variety of choices from which plan beneficiaries can create their own asset allocations? The DOL doesn’t say (and many believe both answers are acceptable).

Being a 401(k) fiduciary is not as hard as it seems, but it’s not as easy as a checklist implies. What matters most is that plan sponsors know their responsibilities and know who to ask what questions to.

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