The overlooked fiduciary duty: Here’s the safest way to limit your liability

As you well know, diversifying investments, avoiding prohibited transactions and following plan documents are just a few of the responsibilities employers have as fiduciaries of a company-sponsored 401(k) plans.  

But according to Kendall J. Frederick, the senior manager of finance integration for Hanesbrands, the many responsibilities of a plan fiduciary can essentially be broken down into two major duties:

• to make prudent investment elections for plan participants, and
• to monitor how plan participants are utilizing those investments.

Where things get tricky

During a recent presentation, Frederick warned attendees that fiduciaries and 401(k) committees weren’t paying enough attention to the latter duty.

There are a number of ways to limit fiduciary liability – such as satisfying ERISA’s 404(c) safe harbor. But things can get tricky when plan changes occur: different asset allocations, new recordkeeper, etc.

The best way to deal with these types of changes? In these situations, Frederick touts a plan re-enrollment as one of the safest and most effective vehicles to fulfill all fiduciary duties.

The safest approach

With a plan re-enrollment, when changes in a plan occur, employees have the option of sticking with their current investments (if available) or making a change in their investments. If they don’t do so within a certain time frame, they automatically default to a Qualified Default Investment Alternative (QDIA).

Why do a re-enrollment?

Compared to other options, re-enrollment offers greater protections for participants and fewer restrictions; new laws and court rulings support this tactic; and it’s easier to prove good intent (fiduciaries are judged on the intent of investments, not the outcome).

Based on “Plan Re-enrollment: One Ring to Rule Them All,” by Kendall J. Frederick, as presented at the Association of Financial Professionals in Denver.