By Sarah Bishop, Senior Retirement Plan Advisor
Learn more about our Retirement Plan Consulting Services
Providing a 401(k) plan for your employees is a powerful tool that can set them up for long term success in retirement and contribute to improved overall financial wellness. As plan sponsors, employers have certain fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA).
Understanding these responsibilities is critical to ensure compliance, protect both the plan, its participants and beneficiaries, as well as mitigate risk for the employer.
Are You a Fiduciary?
As a plan sponsor, you act as a fiduciary when you exercise discretion over plan management, plan assets, or the selection and monitoring of service providers. Individuals or entities that provide investment advice for a fee may also be considered fiduciaries.
Fiduciary responsibility is determined by the actions taken on behalf of the plan, not by job title, and may be carried out by individuals, committees, trustees, or organizations.
Every retirement plan must name at least one fiduciary responsible for overseeing plan operations. While decisions to establish, amend, or terminate a plan are business decisions, implementing those decisions may involve fiduciary responsibilities under ERISA.
Once fiduciary status is established, ERISA outlines specific duties that guide how plan sponsors must act when managing and overseeing the plan.
Key Fiduciary Duties
Duty of Loyalty – Exclusive Benefit Rule
Fiduciaries have the duty to act solely in the best interest of plan participants and beneficiaries. This means avoiding conflicts of interest and making decisions with the exclusive purpose of providing benefits to plan participants and beneficiaries, while maintaining good faith and transparency.
Duty of Care – Prudence
The duty of prudence requires that fiduciaries act with care, skill, and diligence. This includes making decisions based on a prudent process that includes thorough research, documentation and expert advice when needed.
If fiduciaries lack expertise in certain areas necessary to perform their duties prudently, they should engage a professional with expertise in that function.
The duty of prudence focuses on the process used to make decisions, not the outcomes of those decisions.
Duty to Follow Plan Terms
Fiduciaries are required to follow the terms of the plan document (unless it conflicts with ERISA). They should be familiar with plan terms and periodically review the plan document to ensure it remains compliant and up to date following plan changes or required regulatory updates.
Duty to Diversify Investments
To minimize the risk of significant losses, fiduciaries must ensure that the plan’s investments are adequately diversified. This involves selecting a mix of asset classes and investment options and considering each investment as part of the plan’s entire portfolio.
Pay only Reasonable Plan Expenses
Fiduciaries should understand the fees and expenses charged by service providers, how these fees are paid (by employer, by plan participants, directly or indirectly), and determine if they are reasonable for the services being provided.
Reasonableness is based on the services provided and market context, not simply selecting the lowest‑cost option. Ongoing reviews and documentation are necessary to ensure expenses continue to be reasonable as the plan and market evolve.
Fiduciary Best Practices
Regular Plan Reviews
Conducting regular reviews of the 401(k) plan is essential for maintaining compliance. These reviews should assess the plan’s investment options, due diligence process, performance, fees and other relevant fiduciary items. Regular reviews with expert guidance can help identify and address any issues before they become significant problems.
Documentation
Fiduciaries should document decisions related to the 401(k) plan. Proper documentation provides a clear record of fiduciary actions and process and can serve as evidence of compliance in case of an audit or legal challenge. Meetings, relevant discussions and rationale for key decisions should be documented.
Providing Participant Education
While ERISA does not require participant education, it allows fiduciaries to provide education without becoming investment advice fiduciaries when structured appropriately.
ERISA permits and encourages fiduciaries to provide investment education to help participants understand their options and make informed retirement decisions. Employers may hire an investment advisor to provide financial education related to the plan, as well as broader financial wellness topics, which may encourage greater understanding and participation in the retirement plan.
Employers should ensure that all required participant notices and Summary Plan Description are furnished to plan participants and beneficiaries.
Mitigating Risks
Fiduciary responsibilities also carry the potential for personal liability. Fiduciaries are required to follow the basic standards of conduct under ERISA and may be personally liable for failing to meet these standards.
Fiduciary Liability Insurance
Fiduciary liability insurance is separate from an ERISA fidelity bond, which protects the plan rather than individual fiduciaries.
Fiduciary liability insurance can protect plan fiduciaries from personal liability in case of a breach of duty. This insurance covers legal defense costs and any settlements or judgments resulting from fiduciary breaches. Consider obtaining this coverage to mitigate potential risks.
Hiring Professional Advisors
Engaging professional advisors, such as financial consultants and legal experts, can help fiduciaries fulfill their responsibilities when selected and monitored through a prudent process.
These advisors can provide valuable insights and guidance on plan management, investment selection, and regulatory compliance.
Staying Updated on Regulatory Changes
The regulatory landscape for 401(k) plans is constantly evolving. Fiduciaries must stay informed about changes in laws and regulations that affect plan management. Regular review of updates from the Department of Labor (DOL) and other regulatory bodies is recommended to ensure ongoing compliance. Financial advisors and consultants may also assist fiduciaries with staying up to date on these important changes.
Fulfilling fiduciary responsibilities is essential for the successful management of a 401(k) plan. By understanding key duties and adopting best practices for compliance, employers can protect the plan, its participants and beneficiaries as well as mitigate risk for fiduciaries. Encourage your team to stay informed and proactive in their fiduciary roles to ensure the long-term success of your 401(k) plan.
What Does a Successful Fiduciary Process Look Like?
- Creates a consistent, repeatable framework for fiduciary decisions
- Enables continuity and succession, if responsibilities change
- Documents decisions, rationale, and data reviewed
- Provides a defensible record demonstrating prudent process
- Relies on clear, thorough documentation to support oversight
Explore our Wisdom and Wealth page to learn how Moneta can support financial wellness and retirement plan education for plan sponsors and participants.
Sources:
https://www.irs.gov/retirement-plans/retirement-plan-fiduciary-responsibilities
Section 404 of ERISA (29 U.S.C. §1104
Disclosure:
© 2026 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.
Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.
