Important tips on how to protect your fiduciary role

Have you ever wondered exactly what a fiduciary is?

What does it mean? Are you the fiduciary? Is your service provider the fiduciary? Are you both fiduciaries together? It sure is important to know your role in all of this.

First, let's start with a simple definition.

A fiduciary is a person or group of people that oversee and make decisions about the retirement plan for the benefit of the participants. So you're wondering if you're a fiduciary? After reading that definition you know the answer is yes.

Now the next question is this. Is the retirement plan company (we call your service provider) a fiduciary in any sense? Your service provider may fit into one of three categories: 

  1. No fiduciary responsibility at all
  2. A co-fiduciary
  3. A full-fiduciary

As an example, Envoy Advisory, Inc serves as a 3(21) co-fiduciary with the Plan Sponsors it supports.  

Ok, so you're in ministry to reach the lost - not manage retirement plans. There are many wise decisions that you can make to reduce your fiduciary risk. 

When you have these elements in place, you will be taking the first steps in managing your fiduciary risks.

First, be sure to have a diversified investment menu. What does this mean if you're a fiduciary? Let me tell you a quick story.

There was an employee of an organization who sued his employers because he didn't have a conservative investment option available to him in his retirement plan. The market went down, he lost money, and he took that to the courts. Sure enough, the ruling concluded that the plan did not have a diversified enough investment menu.

So review your investment menu and make sure it is complete. Be sure to include a buy and hold mutual fund option as well as target dated funds, risk-based asset allocation funds, and for your less investment savvy employees, have available professionally managed accounts. One last option that will separate your plan from a secular plan is to be sure to include faith-based funds.

Second, make sure you provide proper disclosures to your participants. These disclosures include a summary plan description, fee disclosures, and the investment detail.

Third, confirm that your organization has proper plan documentation.  

If the IRS or department of labor walks in your door, you're required to show them all of the elements and components of your plan. The best way to do this is to have all of your documents in one place. They include the following five documents.

  1. The Board Resolution. This is what the board uses to authorize and adopt a plan.

  2. The actual Plan Document and Adoption Agreement. This outlines all of the components of your plan.

  3. The Summary Plan Description. This is the document that you hand out to employees that gives a summary of the whole plan.

  4. The Investment Policy Statement. It provides the guidelines and parameters for your investment selection.

  5. The Educational Policy Statement. This provides guidelines and parameters for your educational program.

You are on the pathway to having a successful retirement plan. Here's to keeping it legal and compliant!

Do you want to know if you have a good retirement plan? Take this free, 2-minute assessment today.