I'm Not A Fiduciary-It's That Other Guy

                                                                                  By Carol Buckmann

 We are stuck at 43%.  A 2017 defined contribution plan survey by J.P. Morgan indicates that there has been no improvement in this percentage of corporate plan decision-makers who don’t understand that they are fiduciaries.  17% even thought that they could pass on all of their fiduciary responsibilities to third parties such as their provider, recordkeeper or investment adviser.  Not surprisingly, the survey also indicated that those who were aware of their fiduciary status were more confident in their processes, more aware of fiduciary protections and more likely to follow best practices.

What are we to make of this?  It appears that all of the recent publicity about the Fiduciary Rule and the role of advisers hasn’t made any impression on this group.  Nor have the statements in the service contracts they sign which either acknowledge that the provider is not a fiduciary or provide that the adviser will be a “co-fiduciary” for investments.  What do they think the “co” means? While it may be that some of these clueless fiduciaries won’t get the message until they are audited or sued, this survey provides a compelling reason to expand fiduciary education efforts.

Overcoming Resistance.  The first reaction of busy executives to the suggestion that they need fiduciary education is usually “I have to run my business. I don’t have the time.”  This is a good opportunity to explain the concept of personal liability for fiduciary breaches, which usually gets their attention.  It is also a good time to explain how good processes and procedures, as well as delegation to other professional fiduciaries, can limit their liability exposure.  Decision-makers who don’t know they are fiduciaries probably also don’t have fiduciary insurance covering their plan activities, and understanding available protections can also be a selling point for fiduciary education.  Finally, while fiduciary education isn’t legally required by any specific rule, Department of Labor auditors do look to see if there has been fiduciary education as part of their audits. This makes sense, as it is unlikely that company insiders are effectively fulfilling their fiduciary responsibilities if they don’t know what they are.

Topics to Include.  Start with bonding.  Even today, I find plan fiduciaries who don’t understand that they need to be bonded for losses caused by fraud or dishonesty.  If they haven’t complied, they can be required to personally make up losses that should have been covered.  In addition, good education should include discussion of the following:

·       Safe harbors, including ERISA 404 (c) and qualified default investment alternatives

·       Outsourcing to fiduciary investment managers and professional plan administrators

·       Sharing responsibilities with co-fiduciaries

·       The importance of written policies and procedures

·       Monitoring plan providers

·       What auditors look for

The bottom line is that corporate decision-makers need to be made to understand that “the buck stops here.”