Retirement Plan Sponsors: It Can Be Costly to Underestimate Your Responsibilities

If you play a key role at an organization with a retirement plan, there’s a strong chance you would be considered a plan fiduciary. That means you’re responsible to make sure everything in the plan is managed for the benefit of participants.

That should not be surprising. If your employees are putting their own money away each month to save for retirement, they should be able to expect those responsible for the plan to manage the plan very carefully. Their future depends on it.

What is surprising? A recent survey showed that about half of plan sponsors don’t believe they are fiduciaries.

Houston, we have a problem.

The Fiduciary Role

When you’re a fiduciary, the pressure is on you to do the right thing consistently, or be held accountable. So everything you do with your retirement plan must be in the best interests of the participants. That includes such diverse tasks as creating an investment policy, selecting mutual funds, managing fund costs and educating participants. Even if you have professionals helping you with all of those functions, as a plan sponsor, you’re still held responsible. You’re in a position of authority in watching over participant money, so you had better do it right.

A New Landscape

The fiduciary responsibility is nothing new. What is new is the evolving legal landscape. With litigation against plan sponsors increasing at a frightening rate, you probably don’t want to be one of those who doesn’t understand your role. Because not properly managing the company retirement plan may put your company at risk. Worse, you could be sued personally.

You May Face Personal Liability

Corporate or organizational liability is bad enough. Even if the plan sponsor prevails, the cost to defend can be devastatingly expensive. But it can get worse: in some cases you may face personal liability.

One recent example is the case of Tibble v Edison International. In this case, the Vice President of Human Resources was found personally liable for a fiduciary breach, along with the corporation.
With attorneys actively prospecting for unhappy participants, the message is clear: you cannot afford to ignore the importance of doing this right. Otherwise you may be opening yourself up to potential liability.

Ensuring Good Compliance

Because of what’s at stake, you can’t treat the responsibility casually. A simple misstep or omission could create liability.

Especially given the fact that the US has enjoyed a decade of strong stock market returns. Most participants are probably looking at gains. But the stock market is cyclical. When the next “bear” market occurs, which can happen at any time, we anticipate there will be much more unhappiness among participants.

So, you’ll want to have experienced experts helping you manage your plan correctly and effectively. It’s usually best to hire a fiduciary retirement plan advisor, who can share the responsibility with you.

You Still Retain Responsibility

Some plan sponsors believe once they hire an expert, their responsibility is less. Not so. You still have to watch the firms you hire and ensure they are doing a good job. You also need to make sure you are paying reasonable fees at all times.

So it’s critical that you choose your retirement plan consultants very carefully. What should you look for in a retirement plan advisor to minimize liability? Here’s some tips.

Experience. How long has the company been in business? You don’t want to be part of anyone’s learning curve, so best to limit your choice to firms with at least a decade or more of experience.
Specialization. Some local financial advisors who primarily help individuals may dabble in retirement plan advisory. That’s usually not your best choice. Its better to limit your search to firms that handle a lot of plans, simply because they have the experience and knowledge to do it right. One oversight and the generalist may put you in a problematic situation.

Track Record. You’ll want to find a narrow your search to firms that have a track record of helping clients successfully avoid liability. In the current environment, there’s just too much at risk.

Independent. It’s no surprise, but excessive fees are a target in recent litigation. If you’re working with a firm with ties to a product company, you’ll likely receive recommendations to use proprietary products (which usually carry higher fees). Instead, it’s safest to work with a completely independent firm, to avoid those conflicts of interest. It’s safer for you and your participants.

Fiduciary. By hiring a Registered Investment Advisor, you are hiring a firm that is able to serve as a full fiduciary. This way you have an experienced partner who will share your liability. This firm should be able to assist you in implementing best practices and ensuring proper plan compliance.

Fund Selection Expertise. Another focus of recent litigation has been poor fund selection and inadequate monitoring to remove failing funds from the lineup. To address this area, make sure the advisor you choose has systems in place to monitor your mutual funds and remove them when they show signs of deteriorating performance or excessive management fees.

With regard to retirement plan administration, an ounce of prevention really is worth a pound of cure. Put the time in now to make sure you hire the right professionals, then work closely with them to keep your participants’ futures on the right track.


John Odell is Principal of Capital Research + Consulting, a Retirement Plan Advisor to governmental, non-profit and corporate retirement plans.   With over $4 billion in plan assets, we have over 27 years of experience keeping plan sponsors compliant and helping participants prepare for the future.  Visit us at


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