Fiduciary: Relating to the holding of something in trust for another. In this case you the employer are considered to be making decisions that affect the assets of your employee’s retirement plan in trust.

Employers are deemed to be a fiduciary under ERISA for their company sponsored retirement plan. The Department of Labor (DOL) states that the plan fiduciary (employer) has an on-going obligation to prudently select and monitor frequently the investment options that have been chosen for the plan menu. If they so choose, employers who sponsor a qualified retirement plan (401(k), TSA, Money Purchase, Profit Sharing) may take advantage of reduced fiduciary liability under ERISA Section 404(c).

However, if all of the requirements are not met, employers will be unable to take advantage of the relief offered by ERISA 404(c). Under 404(c), participants and beneficiaries must exercise control over plan assets. To achieve this, employers must provide the participants and beneficiaries:

1. A broad range of investment alternatives consisting of at least three materially diversified investment categories, not including company stock.
2. Diversified investment among the investment categories.
3. Adequate information to make informed investment decisions.
4. The ability to transfer investments at least on a quarterly basis.

   Sufficient investment control by the employee is deemed to exist only when the participants are provided with enough information to make informed investment decisions, they have reasonable opportunity to give investment instructions and a fiduciary is obligated to follow those instructions.

There must be at least three investment alternatives offered. They must allow that fund assets are invested in a diversified manner, each fund has different risk and return characteristics and each fund when combined with the others must allow the participant to establish a portfolio with aggregate risk and minimize the overall risk through diversification.

While one purpose of ERISA 404(c) is to transfer the fiduciary responsibility from you the owner to the plan provider, the true outcome should be satisfied employees that know you and the plan provider are looking out for their best interests. Given the high cost of training new employees, one of the most effective ways to retain your current employees is by helping them meet their own personal retirement goals.

These issues are met by ensuring that your plan provider meets all of the critical criteria listed above. While many providers choose to meet the educational component of these requirements by mail or email, I feel that there is no substitute for face-to-face training provided on-site by your financial advisor for all of the participants and beneficiaries to ensure that they have access to adequate information to make informed investment decisions.

(Editor’s Note: This information is general in nature and not intended to constitute legal or investment advice on any particular matter. Please consult with your company’s or the plan’s legal counsel for advice regarding compliance with the law and your role as a fiduciary. Bryant Arnold may be reached at 360-692-0980.).