Top Three Reasons Why You Should Care About Your Fiduciary Duty

Written by Smart Investor | 11 March 2010

As the plan sponsor of a corporate retirement plan, you know that you're a fiduciary for the plan. However, you may be so busy running your business that you don't think much about what being a fiduciary means. Fiduciary duty, the legal requirement to put employees' interests first in all decisions about the plan, is important for three big reasons.

Reason #1 You care about your employees and want them to enjoy a secure, well-funded retirement. Plan sponsors who don't fully understand their fiduciary duty may select imprudent investments for their defined contribution plan offerings. They may also pay unreasonably high expenses. Sometimes plan sponsors fall under the sway of brokers or fund companies, which are not legally required to put client interests first. These providers may bundle their services or use revenue sharing, so it's difficult to understand how much plan participants are paying for their investments.

Plan sponsors who pay attention to their fiduciary duty know that fees add up. A plan participant who pays a fee of 2.0% will have significantly less money upon retirement than if he or she paid only 1.0%. Fiduciaries ensure that fees are reasonable.

Reason #2 You expose yourself to financial liability, if you don't fulfill your fiduciary duty. Lawsuits by individuals against the fiduciaries for their retirement plans used to be rare. But recent court rulings are changing this. A lawsuit could result in fiduciaries losing their personal assets. Moreover, an individual fiduciary's legal fees could easily run into six figures or more.

Plan sponsors who understand the importance of fiduciary duty can reduce their risk. This often involves hiring an independent advisor who lives, eats and breathes the requirements of fiduciary duty.

Reason #3 Delegating some of your fiduciary duty may be a wise choice. Some plan sponsors don't realize they can delegate much of their fiduciary duty. In fact, the fiduciary duty to put employees' interests first may mean that a company has a duty to hire an independent fiduciary to make up for gaps in the plan fiduciaries' knowledge. Both the fiduciaries and employees may be better off with a skilled, independent advisor.

I've only scratched the surface of these three reasons why you should care about your fiduciary duty. If you'd like to learn more, call me at 916-435-2100, email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it