Are Employers Inadvertently Exposing Themselves To Fiduciary Liability?

Last Updated: July 13, 2015

When considering the duties of the various parties involved in a retirement plan, it is important to first distinguish between settlor and fiduciary functions.  Settlor decisions, such as the decision to start, amend, or terminate a plan, do not carry with them the same high standards of conduct as fiduciary decisions.
Once the distinction is made between who is and who is not a fiduciary, it is important to know the four standards of conduct that all fiduciaries must follow: 1) The duty of loyalty, 2) the duty of prudence, 3) the duty to diversify, and 4) the duty to adhere to plan documents. With the enactment of ERISA 408(b)(2),  the Department Of Labor has made it clear that a key piece to a fiduciary’s duty of prudence is the duty to monitor service providers.  This duty requires fiduciaries to ensure that the fees being charged to the plan are reasonable, and the services being provided are necessary.  To fulfill this duty to monitor, fiduciaries should from time to time conduct a request for proposal (RFP).  There is no firm rule dictating how often an RFP should be conducted, but practitioners commonly recommend an RFP at least every 4 to 6 years. When an RFP is carried out, it is important for plan fiduciaries to be prepared to move record keepers if the RFP results in providers that are willing to offer similar or better services for a lower fee.  In consideration of this, and depending on the situation, it may be prudent to include the current recordkeeper in the RFP process, as there are costs involved in changing recordkeepers.  Both renegotiating with the current recordkeeper and requesting proposals demonstrate the fiduciary’s intention to act in the best interest of participants and their beneficiaries. Retirement Plan Sponsors often put a number of measures in place to shield themselves from the fiduciary liability that goes along with administering a retirement plan.  One effective way to do this is through a delegation of the plan administrator function to a retirement plan committee.  This committee then takes on the fiduciary responsibility of running the plan, while the employer’s responsibility is reduced to monitoring the committee. A problem can arise, however, when an employer wants to have a say in one of the biggest fiduciary decisions of running a retirement plan–selecting and monitoring vendors.  Changing from one vendor to another is no small task, and it can have implications that go beyond the retirement plan itself.  For this reason, employers often want to play a role in this process.  The problem with an employer getting involved in the RFP process is that the employer then becomes a fiduciary with respect to vendor selection, which defeats the purpose of delegating to a committee in the first place. It is for this reason that it is so important to draw clear lines, and ensure that all of the parties involved understand what is, and what is not, their responsibility with respect to decisions regarding the plan.  A clear board delegation of authority to a retirement plan committee, a committee charter, and fiduciary acceptance letters go a long way in setting the boundaries of responsibility. If you have questions about proper monitoring of your vendors, or would like to discuss drafting a retirement plan committee charter, contact our ERISA Services Team today at 417.889.4918.   PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


Pension Consultants, Inc.



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