The Frugal Fiduciary Small Business 401(k) Blog by Employee Fiduciary

What You Ought to Know About 401(k) Fiduciary Responsibility

Written by Greg Carpenter | Apr 10, 2013 2:45:18 PM

 Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Hello, friends! Apologies for my absence last week. I was traveling abroad (frugally, of course), holding an umbrella in various Italian cities. Although I was an ocean away, I noticed several versions of the same story popping up in my 401(k) news alerts. Each story got me thinking about what everyone ought to know about the fiduciary responsibility of a trustee.

Let’s start with the report that kicked it all off: the GAO report on 401(k) rollovers. Using their best sleuthing skills, the U.S. Government Accountability Office made undercover calls to 401(k) plan providers in order to tease out what sort of information is provided to plan participants who are separating from their employers. What they discovered - surprise, surprise - is that plan providers often gave misleading information, in the guise of education, encouraging 401(k) participants to rollover their plan savings into an IRA.

A Quick Review - 401(k) Fiduciary Responsibility

Before moving on, it’s worth reviewing the fiduciary responsibility of a trustee. A fiduciary has been given the authority to manage the 401(k) plan and its assets. Most importantly, a fiduciary is responsible for acting in the best interests of the plan’s participants. In other words, they should be working for YOU, on behalf of YOU, without any self-dealing or conflict of interest. The Frugal Fiduciary is more than just a pretty name!

Back to the Story

As noted by MarketWatch, the Washington Post and others, the plan providers did very little to understand the unique financial circumstances of the undercover callers. Instead, they promoted their own IRA products, often touting them as “free” and encouraging participants to rollover their 401k into these retirement vehicles instead.

As I have written before, never invest in anything you don’t understand. Admittedly, this can be hard when a sales pitch is being represented as educational material, but consider the source of your information and beware. A true fiduciary has the heart of a teacher. There are many options available to employees who are parting ways with their employers - it’s up to you, with the help of your fiduciary, to sort out which option will help you meet your retirement goals.

Talk to me - does the GAO’s report have you thinking about the fiduciary responsibility of trustees? Drop your note in the comments below.