Know your role as a fiduciary

As a retirement plan sponsor, understanding your role as a plan fiduciary and meeting your obligations for plan disclosures and events have never been more important. Find out what you need to know about your responsibilities by clicking on the headers below.

Plan disclosure checklists

It’s your fiduciary responsibility to provide a variety of disclosures and notices to plan participants and their beneficiaries. There are also a number of steps you may need to take to ensure that your plan is in compliance with its written provisions and to reset it for the upcoming plan year.

Download the Plan disclosure checklists for sponsors (PDF).

- Who qualifies as a fiduciary
  Under the Employee Retirement Income Security Act (ERISA), the federal law governing the operation of qualified retirement plans, a plan sponsor is considered to be a fiduciary. But a plan sponsor may not be the only fiduciary. A fiduciary can also be:
  
  any person or group of people specifically named as a fiduciary in a plan document (e.g., an administrative committee)
  
  anyone with discretionary control over the administration of a retirement plan or the investments offered in the plan (e.g., a plan sponsor)
  
  anyone who gives investment advice for a fee
- What is expected of a fiduciary
  Fiduciaries must comply with the requirements outlined in ERISA. That means they must:
  
  Demonstrate loyalty to the plan. Fiduciaries must act solely in the interests of the plan and its participants and beneficiaries. For example, plan assets should never be used for their own or the company’s advantage — even if it also benefits the plan. Receiving personal benefits from any party associated with the plan is also forbidden.
  
  Proceed with prudence. Fiduciaries must act with the same care, skill, prudence and diligence that an informed individual who is familiar with retirement plan issues would use under similar circumstances. The duty to act prudently requires expertise in a variety of areas, such as investments. If a fiduciary (e.g., plan sponsor) lacks that experience, they will want to hire someone with the professional knowledge needed to carry out that function. However, it is important to note that plan sponsors are held to this prudence standard even if they bring in experts to help. They can delegate some responsibilities to others, but still have oversight responsibility of those that they hire and are therefore personally liable.
  
  Acting prudently also means that investments and plan operations must be reviewed on an ongoing basis. Plan investments, expenses and operations should be regularly evaluated to ensure that everything is running properly and that costs paid by the plan are reasonable. The documentation of the decision-making process should make clear what information was considered and what decisions were made.
  
  Diversify investment options. Fiduciaries must ensure that the plan’s investment offerings are adequately diversified. They can increase diversification by:
  
  offering a sufficient number of investment options with materially different risk and return characteristics covering different investment objectives (e.g., growth, growth and income, income, and capital preservation)
  
  including funds that focus on investments both inside and outside the United States (e.g., international and global funds)
  
  selecting bond funds with different maturity rates (e.g., short-term, intermediate-term and long-term)
  
  Act in accordance with plan terms. A fiduciary’s decisions and actions should be consistent with the basic rights and obligations outlined in the plan document.
  
  Only pay reasonable plan expenses. When the fees for services are paid out of plan assets, fiduciaries will want to understand the fees and expenses charged and the services provided. While the law does not specify a permissible level of fees, it does require that fees charged to a plan be “reasonable.” After careful evaluation during the initial selection, the plan’s fees and expenses should be monitored to determine whether they continue to be reasonable.
  
  Now learn about some strategies by clicking on the five steps below.

- Comply
  Plan sponsors can potentially reduce their fiduciary liability by choosing to comply with section 404(c) of ERISA. Although complying with section 404(c) is not mandatory, compliance provides plan fiduciaries with certain protections from liability with respect to investment decisions made by plan participants. Among other things, under 404(c) participants must be able to:
  
  choose from a broad range of investment alternatives (at least three) that provide access to varying levels of risk and return
  
  change investment options at least quarterly or at least as frequently as appropriate, given the volatility of the investments in the plan
  
  receive sufficient information about the plan to allow them to make informed investment decisions
  
  Plan sponsors may reduce their liability in a participant-directed plan by providing an appropriate “qualified default investment alternative” (QDIA) for participants who do not make an affirmative investment election. Only certain types of investments qualify as a default investment, or QDIA, such as target date funds or balanced funds.
  
  Important: Consult with your legal advisers to determine how 404(c) regulations may apply to your plan.
- Consider
  A written investment policy statement isn’t required by ERISA, but the Department of Labor has stated that adopting and maintaining an investment policy statement is “consistent with the fiduciary obligations set forth in ERISA.” In other words, it’s a good idea.
  
  A sound investment policy statement should include descriptions of the plan’s:
  
  overall investment strategy
  
  prudent array of investment options
  
  strategy for monitoring the investment options
  
  intention to comply with section 404(c) of ERISA (if applicable)
  
  Important: Make sure your legal advisers approve your investment policy statement. Once the policy is in place, be sure to follow it. The document also should be reviewed and updated regularly to reflect any changes.
- Disclose
  Under section 404(a)(5) of ERISA, plan sponsors are required to provide participants with the information they need to make informed investment decisions. ERISA 404(a)(5) requires that participants receive information in three general areas:
  
  Plan information: Including the investments that are offered, general information about directing investments, plan-level administrative charges and individual participant charges that may be levied against an account.
  
  Investment information: Including investment results, comparisons to relevant benchmarks/indexes and investment fees and expenses.
  
  Information should be provided within a chart to easily compare returns and expenses for all plan investment options. References to a website where participants can find additional information should also be included.
  
  Charges deducted from participant accounts: Including any fees actually assessed against participant accounts during the prior quarter — whether shared by all participants (such as recordkeeping fees) or specific to services used by individual participants (such as loan fees).
  
  The fees must be disclosed within a quarterly statement or similar disclosure, and reported in dollars. If relevant, the statement should include disclosure stating that some plan expenses are paid through the expense ratios of the plan's investments.
  
  Disclosure timing
  
  Disclosures must be provided before a newly eligible employee can direct their investments and at least annually thereafter.
  
  Important: Any plan-related changes must be disclosed to participants 30 to 90 days before they become effective.
  
  Help with participant disclosure
  
  Capital Group helps you meet your disclosure requirements with our Participant Fee Disclosure that includes details about the plan’s features and expenses, as well as investment descriptions, results, fees and expenses, and benchmark comparisons. The statement is updated quarterly and is customized for your plan.
  
  You can have us automatically deliver the participant fee disclosure and other disclosure documents using notice delivery services available in PlanPremier. Learn ways to simplify your retirement plan notice process or contact us at (877) 872-5159 for more information.
  
  View your participant fee disclosure document
  
  To see the fee disclosure for your plan, log in to the Plan Service Center and then:
  
  Click Fiduciary Center, and then select Participant Fee Disclosure.
  
  Click Participant Fee Disclosure to view the report.
  
  The document is in Adobe® Reader® format. If you don’t have Adobe Reader, you can download it from Adobe’s website.
- Monitor
  At least once a year, your company’s retirement plan committee should conduct an investment review. Questions to ask include:
  
  Are the objectives of each investment option still consistent with the plan’s overall investment objectives and goals?
  
  Does each investment continue to contribute to the overall diversification of the plan’s portfolio?
  
  How do the results of the investment options compare with appropriate industry benchmarks over a series of different time periods?
  
  What are the investment expenses associated with each option, and how do these costs compare with those of similar funds in their peer groups?
  
  For assistance in your evaluation, you can review your Investment Review report (updated quarterly). To view the Investment Review report for your plan, log in to the Plan Service Center and then:
  
  Click Fiduciary Center and then select Plan Investment Review Report.
  
  Click Investment Review to view the report.
  
  Plan expenses should also be looked at from time to time. Plan sponsors should evaluate whether the plan is getting good value for its money in view of the expenses it incurs. The different sources of revenue used to pay plan expenses should also be noted, along with who receives those payments and from which particular source the payments are derived.
  
  Important: It is essential to document the review process. Make sure you consult with your legal advisers to confirm that your documentation is adequate.
- Review
  Conduct a review of plan operations at least once a year. Key questions to ask include:
  
  Have applicable participant notices for automatic enrollment, safe harbor contributions and qualified default investment alternatives all been delivered in a timely fashion?
  
  Are contributions being remitted on time and invested as directed?
  
  Are withdrawals being approved appropriately and in conformity with plan terms, and were the proper consents and/or waivers obtained?
  
  Are the vesting rules being applied correctly?
  
  Also, consider whether any changes to the plan terms are required or desired. Be sure to review any processes that are outsourced as well.
  
  Important: All issues and resolutions should be documented in the meeting minutes. Make sure you consult with your legal advisers to confirm you’re covering all the bases.

For additional information, take a look at the U.S. Department of Labor’s Fiduciary Education Campaign.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

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This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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Know your role as a fiduciary

Plan disclosure checklists