What is a 401(k) Fiduciary

If you make decisions about your company’s 401(k), you’re a fiduciary—and that comes with serious responsibilities. Fiduciaries are legally required to act in the best interest of the plan and its participants. That means following all requirements and regulations, offering a diverse selection of investments, managing plan assets responsibly, making sure fees and other costs are reasonable, and more.

Let’s break down what it means to be a fiduciary, the types of fiduciaries, and how to protect yourself and your business.

What Is a Fiduciary?

A fiduciary is anyone who makes decisions for a retirement plan. You’re expected to:

• Act in the best interest of plan participants
• Follow ERISA rules and regulations
• Offer a diverse investment lineup
• Monitor fees and service providers
• Communicate clearly with employees
• Keep detailed records of your decisions

Failing to meet these duties can lead to personal liability, fines, and even legal action. Fiduciary mismanagement could cost you and your company tens of thousands of dollars in legal fees and fines.

What Are the Different Types of Fiduciaries?

There are three main types:

• 3(38) Investment Manager
  • Takes full responsibility for selecting and managing investments. Your responsibility is to select and oversee your fiduciary.
• 3(21) Investment Adviser
  • Shares fiduciary responsibility (co-fiduciary). They recommend investments, but you make the final call—and remain liable.
• 3(16) Administrative Fiduciary
  • Handles specific plan administrative tasks like determining employee eligibility, filing Form 5500, approving loans and distributions, and fixing compliance errors. Not all 3(16) providers handle every task, so ask what’s included.

What Is Fiduciary Liability?

Fiduciaries are personally liable for plan mismanagement. That includes:

• Fines up to $100,000 and 10 years in jail for individuals
• Up to $500,000 in fines for companies
• Civil penalties from the Department of Labor (equal to 20% of the recovery amount)

Ignorance isn’t a defense—so it’s critical to understand your role. Don’t manage your plan alone: Download the Fiduciary Checklist to stay compliant

Can You Outsource Fiduciary Duties?

Yes! You can outsource investment and administrative duties to reduce your risk. But be careful:

• Make sure your provider is a true full fiduciary
• Watch out for revenue sharing or kickbacks
• Ask if they help maintain a fiduciary audit file
• Look for providers who offer fiduciary education

The amount of fiduciary responsibility you take on is up to you. Take a peek at our fiduciary comparison chart for a quick cheat sheet when it comes to fiduciary advisors.

As a CEFEX certified ERISA 3(38) Investment Manager ¹, we always put your interest first by helping you stay compliant. We have been a trusted fiduciary partner for small and mid-sized businesses for over a decade. Contact us to learn more about how we can partner with you to protect your company and employees.