Broker Check
01 June
Business Owner's Company 401k Plan Fiduciary Liability



Business owners who offer a 401(k) plan to their employees have fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA). These responsibilities are designed to ensure that the 401(k) plan is managed in the best interests of the plan participants. The key fiduciary duties include:

1. Duty of Loyalty

  • Exclusive Benefit Rule: The plan must be operated solely in the interest of participants and their beneficiaries.
  • Avoid Conflicts of Interest: Fiduciaries must avoid any conflicts of interest that could affect their decisions regarding the plan.

2. Duty of Prudence

  • Prudent Person Rule: Fiduciaries must act with the care, skill, prudence, and diligence under the circumstances that a prudent person would use.
  • Investment Decisions: Must be made wisely, with proper diversification to minimize the risk of large losses.

3. Duty to Diversify Plan Investments

  • Risk Management: The plan’s investments must be diversified to reduce the risk of significant losses.

4. Duty to Follow Plan Documents

  • Compliance: Fiduciaries must follow the terms of the plan documents (as long as they comply with ERISA) and ensure that the plan is operated in accordance with these documents.

5. Duty to Monitor

  • Ongoing Review: Fiduciaries must regularly monitor the plan’s investments and service providers to ensure they are performing appropriately and in the best interest of the participants.
  • Service Providers: Assess the performance and fees of the service providers and make changes if necessary.

6. Duty to Avoid Prohibited Transactions

  • Prohibited Transactions: Fiduciaries must avoid engaging in transactions that are prohibited under ERISA, which are typically transactions that present a conflict of interest or are not in the best interests of the participants.

7. Providing Information and Disclosures

  • Transparency: Fiduciaries must ensure that participants receive all required information and disclosures about the plan, including investment options, fees, and the plan’s financial health.

8. Ensuring Reasonable Plan Expenses

  • Cost Management: Fiduciaries must ensure that the costs of operating the plan, including investment fees and administrative costs, are reasonable.

Consequences of Failing Fiduciary Responsibilities

Failure to fulfill fiduciary duties can result in significant consequences, including:

  • Personal Liability: Fiduciaries can be held personally liable for any losses to the plan resulting from a breach of their duties.
  • Department of Labor (DOL) Penalties: The DOL can impose penalties and require restitution for any losses caused by fiduciary breaches.
  • Lawsuits: Participants or beneficiaries can sue fiduciaries for breaches of their responsibilities.

Best Practices for Fiduciaries

To effectively manage these responsibilities, business owners can:

  • Establish a Committee: Form a retirement plan committee to oversee plan administration.
  • Regular Training: Ensure fiduciaries receive regular training on their responsibilities.
  • Document Processes: Keep detailed records of the decision-making process and the rationale behind investment decisions.
  • Hire Experts: Consider hiring professional advisors to assist with plan management and ensure compliance with fiduciary duties.

By adhering to these fiduciary responsibilities, business owners can help ensure their 401(k) plan is managed effectively and in the best interest of their employees.

Let us help you mitigate this risk management. 

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Date and Time

June 1, 2024 - December 31, 2024

3:15a - 4:15a PST


Virtual Video on Demand 4 minutes


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