Most fiduciary mistakes do not start with evil intentions. They usually start with assumptions, inconsistency, or the very human belief that “someone else is probably handling that.” In retirement plan administration, that phrase has been the beginning of many unnecessary headaches. The good news is that many common fiduciary mistakes are preventable once plan sponsors know where the trouble spots tend to crop up.
A few of the most common include:
Failing to clearly define who is responsible for what
When roles are vague, tasks drift or go undone. Investment oversight, fee review, vendor monitoring, and plan operations can all fall into the dangerous category of “shared responsibility,” which often means no one fully owns the process.
Not documenting decisions
A committee may have thoughtful discussions and make reasonable choices, but if nothing is documented, it can be difficult to prove there was a prudent process later.
Assuming service providers are handling more than they actually are
Hiring a TPA, recordkeeper, or advisor can be a very smart move. Assuming they have taken over all fiduciary responsibilities is not. Plan sponsors need to understand exactly what has been delegated and what responsibilities stay with them.
Ignoring fee review
Fiduciaries have a duty to ensure that plan expenses are reasonable. This means understanding what the plan is paying, who is being paid, and whether the services justify the cost.
Reviewing investments too casually
Investment oversight should involve more than glancing at a performance report every once in a while, and hoping nothing looks alarming. Fiduciaries should work with their financial advisors to review the fund lineup regularly and follow a thoughtful monitoring process.
Overlooking operational issues
Late deferral deposits, eligibility failures, incorrect employer contributions, and loan administration errors are not just operational nuisances. They can also reflect fiduciary oversight problems.
Treating governance as a once-a-year exercise
Fiduciary responsibility is a continuous process. A single annual meeting, even one with voluminous amounts of supplemental materials, is usually not enough to maintain a strong process.
The plan sponsor is not expected to be perfect. The goal is to have a fiduciary oversight process that is intentional, consistent, and documented. The most common fiduciary mistakes usually do not come from willful misconduct. They come from ordinary gaps that quietly grow larger over time. A good first step for any plan sponsor is to identify where oversight is informal, unclear, or dependent on assumptions.
