Allan Henriques

It’s completely understandable that you’d want to help when friends or co-workers ask you for guidance. But when it comes to sharing investment or retirement planning advice, it’s best to proceed with caution. Your good intentions could expose you to greater personal liability.

You say that you’re responsible for running your company’s 401(k) plan. That likely means you’re a fiduciary. (A fiduciary exercises control over the plan, provides advice to the plan or its participants, or selects or supervises other plan fiduciaries.) As a fiduciary, you have a legal responsibility to act in the best interests of retirement plan participants – and you’re held to the Prudent Expert Standard.

So the short answer is if you are a Prudent Expert, helping your employees with their 401k investments probably doesn’t increase your liability exposure. However, if you’re not a Prudent Expert (and if you’re not sure if you’re an expert – you probably aren’t), you are going to be treated as if you were. If you provide imprudent advice (or if an employee says you did and he acted upon it), you could be leaving yourself open to increased personal liability for investment losses suffered by the employee.

Many people who “run the company 401k plan” share your concerns. An increasing number are limiting their personal fiduciary investment liability exposure by delegating the operational responsibility for investment decisions and investment advice to employees, to what ERISA calls an independent 3(38) Investment Manager. In many instances, this prudent expert fiduciary will be better able to offer informed, trustworthy advice.

If you want to learn more about meeting your fiduciary responsibility, you can check out the Department of Labor website: http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html

Melissa,

Without knowing the specific details of your situation, it’s hard to say whether you are a fiduciary or not. Based on the information you’ve provided, though, it sounds like you might be.

Generally, there are a couple of things you can do to determine if you are a fiduciary. Ask yourself the following questions. If you answer “yes” to any of them, you’re a fiduciary.

Are you named in plan documents as a fiduciary? This is a no-brainer. If you’re named in your 401(k) plan documents as a fiduciary, then you fall into the category known as “named fiduciaries.”

Do you exercise control over the management or administration of the plan or its assets? According to the Department of Labor, fiduciaries typically include, ”the trustee, investment advisers, and all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials.”

Do you provide ongoing investment management or advice to the plan or to plan participants? This question isn't likely to apply to many corporate employees. But it’s a good reason to be careful before offering any informal investment advice to your colleagues or employees.

Do you select or supervise other plan fiduciaries? This question gives managers a good reason to examine the meaning of “fiduciary” even if they lack direct influence over their company’s retirement plan.

As a plan sponsor, the best way to prepare for the upcoming changes to 401(k) fee disclosures is to educate yourself about your company’s 401(k) plan now so that you can be sure you’re meeting your fiduciary duty and offering the best possible plan to your employees.

Currently, it’s difficult to cut through the verbiage obscuring the fees that plan participants pay for their 401(k)s. But that will change later this year when plan vendors will be required to disclose fees, and plan sponsors will be required to share that expense information with employees in an easy-to-understand format. Beginning July 1, you should receive disclosures regarding fees from your service providers; if you do not receive these disclosures, you should request them. After July 1, if your provider fails to provide the required information within 90 days, the DOL says that you should fire the provider.

The new fee disclosures will allow you to make easy comparisons between plans, which will really benefit you as a plan sponsor, since you have a fiduciary duty to pay only reasonable plan expenses. If plan providers stick to the DOL’s model for disclosing fees, plan sponsors and participants will be able to see data that’s comparable across plan providers. You could even drop the data into a spreadsheet for comparison or to test different scenarios. The format will also enable better comparison of investment options offered by a single provider.

This increased disclosure means that you and your employees will finally have a clear idea of what exactly you’re paying in fees. Of course, if employees learn they’re paying high fees and earning subpar returns, they’re likely to be upset. That makes this a good time for you to clean up your company’s 401(k) plan, so you can get ahead of possible employee outrage. One way to do that would be to be proactive and request cost information (in writing) from your service providers now, so that you can get a handle on what fees are being charged and prepare yourself for any questions you may receive from employees after July 1.