Navigating ERISA Fiduciary Risks in 401(k) Management

 

A four-panel educational comic about ERISA fiduciary responsibilities in 401(k) management. Panel 1 shows two businessmen discussing that managing a 401(k) plan involves fiduciary duty under ERISA. Panel 2 lists ERISA duties: duty of loyalty, duty of prudence, diversification, and compliance. Panel 3 highlights common risks such as excessive fees, investment issues, and conflicts of interest. Panel 4 advises to document decisions and benchmark the plan regularly to avoid litigation, with one character holding a "401(k) Complaint" document.

Navigating ERISA Fiduciary Risks in 401(k) Management

Managing a 401(k) plan means more than just offering retirement benefits.

It means accepting fiduciary responsibility under the Employee Retirement Income Security Act (ERISA)—and that comes with serious legal and financial obligations.

This guide will help you identify ERISA fiduciary risks, understand your legal duties, and take practical steps to protect both your organization and plan participants.

📌 Table of Contents

What Is ERISA and Why It Matters

ERISA is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry.

It mandates that fiduciaries act prudently and solely in the interest of plan participants.

Failure to comply can result in civil penalties, personal liability, and class-action lawsuits.

Key Fiduciary Duties Under ERISA

Duty of Loyalty: Act solely in the interest of plan participants and beneficiaries.

Duty of Prudence: Carry out duties with the care, skill, and diligence of a prudent expert.

Diversification: Ensure plan investments are diversified to minimize risk.

Compliance: Follow the plan’s governing documents and ERISA requirements.

Common Risk Areas in 401(k) Oversight

Plan sponsors face litigation for excessive fees, poor investment options, and lack of participant education.

Failure to monitor recordkeepers or review fund performance can be deemed fiduciary negligence.

Plan documentation errors, late remittance of contributions, or conflicts of interest are also frequent red flags.

How to Mitigate ERISA Fiduciary Risks

Document Everything: Maintain written records of all fiduciary decisions and meetings.

Benchmark Regularly: Compare plan fees, funds, and advisor performance to industry norms.

Fiduciary Liability Insurance: Protect personal and corporate assets from legal action.

Hire Experts: Consider hiring a 3(38) investment manager or 3(21) advisor for fiduciary delegation.

Monitoring Plan Advisors and Vendors

Fiduciaries must prudently select and monitor plan service providers, including advisors, recordkeepers, and custodians.

Review contracts, evaluate disclosures, and conduct periodic due diligence audits.

Replace underperforming vendors promptly to avoid liability.

Further Reading on Compliance and Plan Governance











Keywords: ERISA fiduciary risk, 401(k) compliance, fiduciary liability insurance, plan sponsor duties, retirement plan governance