Beyond Compliance: What Fiduciary Prudence Really Requires
- ellenk56
- 4 days ago
- 3 min read
There's a certain comfort in hearing that your plan “passed.” The testing came back clean. The audit opinion was issued without qualification. The actuarial valuation was delivered without a hitch. The filings and notices went out on time. No red flags.
That’s good news. It’s also not the whole story.
A plan can satisfy every technical requirement of the Internal Revenue Code and ERISA and still leave real questions unanswered.
Are your service providers actually performing as expected?
Are the fees you're paying reasonable for what you're getting?
Is your investment strategy still aligned with the plan's objectives?
Are there missed opportunities – plan design changes, funding strategies, cost efficiencies – simply because no one’s looking for them?
Checking the boxes on the annual compliance requirements is important. However, those tasks are not truly designed to answer these vital questions.
It’s Not What You Decided. It’s How.
The routine annual compliance requirements ask whether the plan is operating within the law and the plan document. That matters — a lot. But ERISA fiduciary responsibility goes further than passing tests and avoiding prohibited conduct. Fiduciaries are expected to act prudently and solely in the interest of participants, and that means the process behind a decision can matter as much as the decision itself.
Take a simple example. Your plan has used the same investment advisor for 15 years. Performance has been solid, participants aren't complaining, nothing's on fire. Is continuing that relationship automatically prudent?
Not necessarily. “We've never had a problem” is not a sound fiduciary process. The question that matters is whether you're periodically evaluating the relationship — understanding what you're paying for, considering alternatives, and documenting why you made the decisions you did.
A sound fiduciary process might well conclude the advisor should stay. The true value is in the ability to articulate why they should stay.
Individually Competent Doesn't Mean Collectively Coordinated
Investment management tends to get the lion's share of fiduciary attention, but your plan runs on a whole network of professionals — third-party administrators, actuaries, recordkeepers, custodians, ERISA counsel, benefit consultants. Each one may be doing exactly what they were hired to do. That doesn't mean anyone is looking at the plan as a whole.
An actuary appropriately calculates the minimum required contribution. A TPA appropriately administers eligibility and benefits. An advisor appropriately manages the assets. But who's asking whether all three are actually working together and benefiting from each other’s expertise?
A change in administration can ripple into actuarial calculations. A shift in investment strategy can affect funding volatility. A shift in demographics touches both. Good governance requires someone to connect those dots. If no one on your team owns that job, it likely isn't getting done.
When oversight is missing, two things tend to happen:
“Reasonable” Should Be a Conclusion, Not an Assumption
Fee reviews are another place where plan sponsors can slip into a false sense of security. ERISA doesn't require the lowest possible fees — it requires fiduciaries to act prudently with respect to the services provided and the compensation paid for them. That's a higher bar than glancing at a fee disclosure once a year. Reasonable isn’t a starting assumption – it’s a conclusion you reach only after you’ve done your due diligence.
A meaningful review asks what services you're actually receiving (which can differ from what your contract says), how they're priced, whether the compensation arrangement is transparent, and whether it still makes sense as the plan evolves. The same logic applies to investments: you don't need the top-performing fund or the rock-bottom expense ratio. You need a defensible process for evaluating your options against the plan's objectives and circumstances, and the available alternatives.
What a Broader Fiduciary Review Looks Like
A comprehensive review pulls the pieces together instead of examining each in isolation:
The goal isn't to find fault. A good review often concludes that the plan is being managed well. The value is being able to demonstrate why.
Final Thoughts
Retirement plans are complicated systems — legal and regulatory requirements, actuarial considerations, investments, administration, and a web of service provider relationships, all moving at once. A plan can be fully compliant and still have real room to improve its governance or reduce its risk.
So periodically, go beyond whether your plan passed its testing and the reports were delivered on time, and ask a harder question: can we demonstrate that we're managing this plan prudently?
Compliance tells you the rules were followed. Fiduciary governance asks whether you're doing the right things for the right reasons, through a process you could explain to a judge if you had to. That's where the real work — and the real protection — begins.
“An ounce of prevention is worth a pound of cure.” ̶ Benjamin Franklin
Comments