THEY SAY THE road to “the other place” is paved with goodintentions. Usually, this issomeone else’s problem, butwhat happens when it tres-passes into your domain?
Do you look the other way?
Or will that implicate you?
Do you blow the whistle? Orwill that get you fired?
The typical 401(k) plan sponsor won’t purposely engage innefarious acts. But there may betimes when actions unknowinglycross the fiduciary line.
If you’re a service provider,youmay be in a better position to seethis transgression than the plansponsor, as you have more experience in the fiduciary world.
Does this mean you are underthe obligation to say somethingwhen you see something?
As you might expect, youranswer can depend on which ERISAattorney you ask.
I’m not an ERISA attorney, but haveinterviewed plenty on this very scenario and have served in various fiduciarycapacities. The answer to this question,therefore, is near and dear to my heart.
This is what I’ve been told:
First, if you have any question on
a matter of this import, speak with a
competent ERISA attorney. If it’s serious,
then you need to address it seriously.
Now, what sort of mileposts might offersome useful guidelines for you?
You may be a fiduciary to the plan, but
that doesn’t mean you are a fiduciary in
all aspects of the plan. For example, if
your service contract names you as an
investment adviser, your fiduciary duties
are limited to just that. If the payroll
processor or the recordkeeper fails to
perform their fiduciary duties, you may
not even be aware of it, let alone be held
accountable for it.
On the other hand, you might
be aware of it. As an honest
and upstanding member of
the financial profession, you
may feel obligated to report
what you’ve discovered to the
appropriate party. This may
fall under a moral obligation
rather than a fiduciary obligation.
That may be the most likelyscenario. But what happens inthe case where it’s the plan sponsor who makes a fiduciary fauxpas? Some attorneys will tell you,if your fiduciary role is limitedand doesn’t cover the area wherethe breach occurs, you’re safe. Idon’t know. I’m not a lawyer.
I’d talk to the plan sponsor
about it, tell why it may appear
to have been an abrogation of
fiduciary duty, and suggest the
plan’s ERISA counsel be formally
asked for an opinion on it.
If it was an extreme situation, I’d put itall in writing. I don’t want to risk even theappearance of being a party to any potential problem. But that’s just me.
Finally, what happens when you’re aco-fiduciary to the plan? This is whereyou have an active risk. You are on thehook for all matters pertaining to theplan. If you see the plan sponsor undertake what appears to be a breach, youhave an obligation to address the situation immediately. This likely includesformally asking the plan’s ERISA attorney for advice.
And if the plan sponsor refuses?
Then you have no other option but toresign as co-fiduciary.
Remember, the client may not alwaysbe right, but he may think he’s right.
That’s OK, but it’s no reason to go downwith the ship.
“You may be
a fiduciary to
the plan, but
mean you are
a fiduciary in
all aspects of
ChristopherCarosa,CTFA, ischief contributing editorfor FiduciaryNews.comand authorof the widelyacclaimedbook,“401(k)