March 5, 2019
- Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
- Carrying out their duties prudently;
- Following the plan documents (unless they are inconsistent with ERISA);
- Diversifying plan investments; and
- Paying only reasonable plan expenses.
Nevertheless, the issues surrounding fulfilment of fiduciary duty are not always clear-cut. The first point outlined above would, on its face, seem self-explanatory, but it can be one of the trickiest to navigate. Fiduciary lapses do not require malice for consequences to be felt.
One of the more common lapses in fiduciary responsibility occurs when fiduciaries wear several hats within an organization. Imagine you are the CFO of a company, and a bank offers a lower interest rate to lend you money if you also allow them to manage your retirement plan. This is not necessarily a breach of your duty of loyalty, but it could be perceived as using participants’ assets to supplement the cost of debt to the company, which would be improper. Bundling services to receive economies of scale is as old as commerce itself; however, fiduciaries have heightened requirements to which they must adhere.
Every fiduciary, regardless of which regulatory regime they serve under, must always put their beneficiaries first. When in doubt, they should make the best decision they can with the information available to them and disclose any potential conflicts of interest. A good strategy is also to partner with experienced co-fiduciaries who can help guide you.
To close on a personal note, our colleague, Matt Zym, will be leaving Cornerstone today to pursue a lifelong dream of hiking the entire length of the Appalachian Trail. We wish him all the best and look forward to hearing about his adventures. Matt, remember, “No Pain, No Rain, No Maine.”
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