Can a Non-Fiduciary Advise ERISA Accounts?

ERISA is the Employee Retirement Income Security Act. ERISA spells out rules and regulations for establishing various retirement plans like 401k plans and pensions. A fiduciary for an ERISA plan has certain responsibilities he must perform. He must look out for all plan participants and work for their best interest. The plan fiduciary cannot jeopardize the plan's assets. Because of this, all persons who advise ERISA-qualified retirement plans have to be fiduciaries for the plan.

Purpose

The purpose of a fiduciary on retirement plans like 401k plans and pensions is to ensure that advice is being given that will benefit plan participants. A fiduciary is legally bound to act prudently and take certain actions that protect the funds in the plan from being mishandled or misused in any way.

Benefit

Plan participants benefit by having fiduciaries. They are protected from unscrupulous advisers who may use the funds for personal gain or take unnecessary risks to meet plan targets that are set too high given the assets and investment options open to the plan. A fiduciary is held responsible for her actions, which means plan participants are assured of performance consistent with expectations that are initially set forth in the plan documentation.

Limitations

Fiduciaries cannot simply walk away from their responsibilities. They must appoint someone who will take over for them before they leave. Additionally, fiduciaries may share responsibility if something happens to the funds in the retirement plan. This is especially true if more than one person could legally have acted to prevent mishandling or loss of funds. This risk, and the legal obligations of fiduciaries, may dissuade some people from becoming fiduciaries.

Consideration

When looking for a fiduciary for your company's retirement plan, you should hire someone who has experience in managing retirement accounts. Ideally, this person would have investment experience and working knowledge of the plan, and would be willing to enter into a fiduciary role. Anyone who wishes to advise you, but does not want to accept a fiduciary role may not have the best interests of the plan participants at heart.

References

• U.S. Department of Labor: Meeting Your Fiduciary Responsibilities
• "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu and Robert A. Crane; 2007