An alarming percentage of individuals who oversee company 401(k) or other defined contribution (DC) plans are not aware of—or are uncertain about—their status as fiduciaries under the Employee Retirement Income Security Act (ERISA). But those who know they are fiduciaries are more confident that their organizations have solid fiduciary practices—and the plans they oversee are more likely to contain features designed to help improve participant outcomes.

These are some of the key findings from J.P. Morgan’s 2017 Defined Contribution Plan Sponsor Survey. Only those who described their responsibilities as ones that would categorize them as fiduciaries were included in the survey. In short, while 100% of respondents were fiduciaries, 43% said they were not fiduciaries or not sure if they were. This finding is not only alarming, it is unchanged from what we saw in 2015 (EXHIBIT 1).

100% of respondents are fiduciaries, yet many are not aware of this fact

EXHIBIT 1: “ARE YOU YOURSELF A FIDUCIARY TO YOUR ORGANIZATION’S RETIREMENT PLAN(S)?”
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Note: Total n = 796 (2013), 756 (2015), 968 (2017).
Source: J.P. Morgan Plan Sponsor Research 2013, 2015, 2017.

The stakes are high

A key goal of ERISA is to protect participants and beneficiaries; one of the ways it seeks to do that is by imposing high standards of conduct and significant duties on fiduciaries. ERISA defines “fiduciary” to include persons who have discretionary authority or control over the management or administration of a DC plan, or anyone who exercises authority or control over the plan’s assets. Examples include the plan sponsor, plan investment committee members and plan trustees. Among their responsibilities, fiduciaries must act solely in the interest of plan participants and beneficiaries, and meet high standards of care, skill and prudence. Fiduciaries can be personally liable for losses if they fail to live up to ERISA’s fiduciary standards. Plan officials who don’t realize they are fiduciaries run the risk of violating ERISA’s standards. This could harm plan participants and expose plan officials and their firms to potentially significant liability.

An aware fiduciary is more likely to be a prudent fiduciary

Not surprisingly, our survey found that those who are aware of their fiduciary status are more likely to employ prudent fiduciary practices than those who don’t think they are fiduciaries or are not certain of their status. This was the case with respect to processes for selecting and monitoring plan investments and those for documenting fiduciary decisions (EXHIBIT 2). It stands to reason that individuals who understand that they are fiduciaries are doing the sorts of things that fiduciaries, by law, should be doing.

Those who know they are fiduciaries are more likely to act in a fiduciary manner

EXHIBIT 2: PERCENTAGE OF FIDUCIARIES WHO ARE CONFIDENT IN AND UNDERSTAND THEIR DC PLANS’ FIDUCIARY-RELATED FEATURES AND PROCESSES
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Note: Total n = 968 (2017). *For confidence around process, n = 441. **For plans with a target date fund (TDF), n = 671. †Qualified default investment alternative (QDIA). Source: J.P. Morgan Plan Sponsor Research 2017.

We also found that those who know they are fiduciaries are more likely to have a philosophy that supports proactively placing participants on a strong saving and investment path. They also tend to be associated with plans that have features designed to help participants save for retirement, such as automatic enrollment and automatic contribution escalation (EXHIBIT 3).

A proactive placement philosophy and automatic plan features are not fiduciary requirements, but those aware of their fiduciary status seem more likely to choose them

EXHIBIT 3: PERCENTAGE OF PLANS/PLAN SPONSORS WITH CERTAIN FEATURES AND PHILOSOPHIES
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Note: Total n = 968 (2017).
Source: J.P. Morgan Plan Sponsor Research 2017.

Be in the know

A clear understanding of fiduciary status, responsibilities, liabilities and protections can help ensure that DC plans are administered and continue to evolve for the benefit of participants, while protecting individual plan fiduciaries and their organizations.

If plan sponsors are not certain that each individual plan fiduciary understands his or her roles and responsibilities, they may want to reach out to experts who can help them improve fiduciary awareness and comprehension. Financial advisors/consultants can and often do provide a valuable service in this regard, by helping make plan officials aware of their fiduciary status, providing tools to help them select and monitor plan investments and service providers, and suggesting prudent practices for documenting plan decision-making.

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