The Fiduciary Standard: What Business Owners Need to Know

The moment you offer a 401(k) plan to your employees, you become a fiduciary. It's not optional. It's not something you can delegate away entirely. And it comes with real legal obligations that many business owners don't fully understand until a problem arises.

Here's what you need to know about the fiduciary standard, why it matters, and how to protect yourself while doing right by your employees.

What Does “Fiduciary” Actually Mean?

Under the Employee Retirement Income Security Act of 1974 (ERISA), a fiduciary is anyone who exercises discretionary authority or control over a retirement plan's management, assets, or administration. If you select the funds in your plan, choose the service providers, or make decisions about plan design, you are acting as a fiduciary.

The fiduciary standard requires you to:

• Act solely in the interest of plan participants and their beneficiaries
• Ensure that plan fees are reasonable for the services provided
• Diversify plan investments to minimize the risk of large losses
• Follow the terms of the plan document
• Act with the care, skill, prudence, and diligence of a prudent person

These aren't guidelines or best practices. They are legal requirements, and failing to meet them can result in personal liability for plan losses or excessive fees.

The Litigation Landscape Is Changing

For years, fiduciary lawsuits concentrated on the largest retirement plans — and they still do: an estimated 3% of plans, those with $500 million or more in assets, absorb nearly all of this litigation. But plaintiff firms have increasingly pushed down-market, filing a growing number of cases against mid-size plans. Meanwhile, the Department of Labor remains an active enforcer of fiduciary duties, recovering $1.4 billion and closing 878 civil investigations in fiscal year 2025.

The most common allegations in fiduciary breach lawsuits include excessive recordkeeping fees, inclusion of high-cost share classes when lower-cost alternatives were available, and failure to monitor and replace underperforming investments. These are all issues that a proper governance process can help mitigate.

Common Fiduciary Mistakes

In my research and advisory work, I see the same fiduciary missteps repeatedly:

• No investment policy statement:An IPS is your roadmap for plan governance. Without one, you have no documented process for how investment decisions are made — which is exactly what regulators and attorneys look for.
• Infrequent committee meetings: Your investment committee should meet on a regular, disciplined schedule to review plan performance, fees, and compliance. Many plans go years without a formal review.
• No fee benchmarking:You can't demonstrate that fees are reasonable if you've never compared them to the market. Regular benchmarking is a fundamental fiduciary obligation.
• Conflicts of interest: If your advisor receives revenue sharing, commissions, or other indirect compensation from the funds in your plan, those conflicts must be identified, disclosed, and managed.
• Set it and forget it: Choosing a plan provider and never revisiting the decision is a common, and dangerous, fiduciary failure.

How to Strengthen Your Fiduciary Position

The good news is that fulfilling your fiduciary duty doesn't require becoming a retirement plan expert. It requires establishing a prudent process and following it consistently. Here's where to start:

1. Document everything:Create an investment policy statement. Keep minutes from every committee meeting. Document the rationale behind every decision. If it isn't documented, it didn't happen.
2. Benchmark annually:Compare your plan's total fees against plans of similar size. This includes investment expenses, recordkeeping, and advisory fees.
3. Monitor investments on a regular, disciplined schedule: Review every fund against its benchmark and peer group. Have a clear process for placing funds on a watch list and replacing persistent underperformers.
4. Engage a 3(38) fiduciary: By hiring an ERISA 3(38) investment manager, you transfer the legal liability for investment selection from your shoulders to theirs. This is the single most effective step you can take to reduce your fiduciary risk.
5. Review service providers regularly: Your recordkeeper, TPA, and advisor should be evaluated periodically to ensure their services and fees remain competitive.

The Bottom Line

Being a fiduciary is a serious legal responsibility, but it doesn't have to be a burden. With the right processes in place and the right partners supporting your plan, you can fulfill your obligations confidently while giving your employees the retirement plan they deserve.

The question every plan sponsor should ask themselves is simple: if the Department of Labor audited your plan tomorrow, could you demonstrate a prudent, documented process for every decision that's been made? If the answer isn't a confident yes, it's time to make changes.

Sources: ERISA Fiduciary Litigation in 2025: Plaintiff Law Firms Continue the Frenetic Pace — Encore Fiduciary, Feb 9, 2026; EBSA Restores $1.4 Billion to Employee Benefit Plans, Participants, and Beneficiaries (FY 2025) — U.S. Department of Labor.