4. Fiduciary Duties and Legal Standards
Adapted from “Transforming the Dialogue: Fiduciary Essentials” by Frederick (Rick) Funston. Amazon, 2025
“Fiduciaries shall discharge their duties with respect to a plan solely in the interest of the participants and beneficiaries...”
So, You're a Fiduciary… Now What?
Congratulations! You’re now officially a fiduciary. But what exactly does that mean?
Being a fiduciary might sound intimidating—especially since, even as a part-time volunteer, you're immediately held to the highest standards of loyalty and care. These standards are even tougher than those for corporate directors, because pension fiduciaries manage others’ retirement savings, often without immediate oversight. There's no grace period to figure things out—you need to get it right from day one.
Don’t panic, though! Understanding your role, responsibilities, and legal obligations from the outset will help you protect yourself, your fellow fiduciaries, and the plan participants and beneficiaries relying on you.
Who Is (and Isn't) a Fiduciary?
A fiduciary is anyone who makes decisions about managing a retirement plan’s assets or administration. Typically, fiduciaries include:
Trustees and board members
Chief Executives (CEs)
Investment managers and certain advisors who actively make investment decisions
Who usually isn’t considered a fiduciary?
Professionals offering purely advisory roles without decision-making power—such as accountants, auditors, actuaries, or attorneys—typically aren’t fiduciaries.
Your Three Essential Fiduciary Duties
Your fiduciary duties boil down to three essentials:
1. Loyalty and Impartiality
You must always act in the best interests of all participants and beneficiaries—both current and future—without personal bias or favoritism.
For example, trustees who represent specific groups (employees, retirees, taxpayers) must still prioritize the collective interest of all participants and beneficiaries.
You must transparently communicate with stakeholders, actively seek feedback, and clearly explain your decisions.
2. Prudence and Care
This duty protects beneficiaries from poor judgment or negligence. Prudence isn’t judged by outcomes alone—it's about using thorough and informed processes to make decisions.
You’re held to a “Prudent Expert” standard in most states, meaning you must act with the skill and care of an informed expert, not just a reasonable person.
You’re expected to know current leading practices but must also tailor them to your system’s unique circumstances. Remember, “one size fits one.”
Diversification is crucial. Avoid putting all your eggs in one basket by spreading risk across different asset classes. Periodically rebalance your portfolio to stay aligned with strategic goals.
Manage costs wisely—not necessarily by choosing the cheapest option, but by considering overall value and net returns.
Prudent Person vs. Prudent Expert
Here’s a quick reference:
Always document your process clearly—this protects you legally and demonstrates prudence.
3. Compliance with Laws and Plan Documents
This duty requires strict adherence to all applicable laws, regulations, and plan documents governing your retirement system.
Regularly review and update your policies, ensuring compliance.
Clearly document all decisions and maintain accurate records.
Actively monitor and correct any compliance issues promptly.
Practical Fiduciary Considerations: Doing the Right Thing
Fiduciaries must also navigate specific practical concerns:
No Unrelated Goals
Trust fund assets must only be used for participants’ financial security. While it’s appropriate to manage environmental, social, and governance (ESG) risks if they materially impact long-term returns, fiduciaries cannot divert resources toward unrelated political or social agendas.
Long-Term Risk Management
Addressing material long-term risks, such as climate change, is part of prudent investment management. Ignoring these risks could threaten long-term sustainability.
Transparency and Clarity
Clearly communicate your investment strategy, risk management approaches, and adherence to fiduciary duties publicly. Transparency fosters trust among stakeholders.
The Fiduciary Board’s Role and Responsibilities
Think of the fiduciary board as setting the long-term course for the retirement system. The board:
Defines strategic direction and policies.
Delegates day-to-day operations to the CE while maintaining oversight.
Uses committees, expert advisors, and independent auditors to manage and verify that management stays on track.
Remember: delegating tasks doesn’t mean relinquishing your responsibility—you always retain ultimate accountability
The Fiduciary Board’s Role and Responsibilities
Before voting or deciding, pause and consider these essential questions (adapted from CalPERS):
Am I acting solely in participants’ best interests?
Have I thoroughly researched and understood this issue?
Is my decision impartial and fair to all beneficiary groups?
Have conflicts of interest been fully disclosed and managed?
Have I sought necessary expert advice?
Is my decision aligned with established policies?
Have risks been identified, understood, and managed appropriately?
Can I confidently explain and defend my decision to stakeholders?
Regularly asking yourself these questions helps ensure you remain compliant, prudent, and fair.
The Fiduciary Board’s Role and Responsibilities
Being a fiduciary isn’t always easy—balancing interests, managing conflicts, and navigating political pressures can be challenging.
Continuous education and clear governance policies are crucial. Experienced trustees can mentor newer ones, sharing insights and building collective confidence.
Lessons Learned: Fiduciary Essentials in Brief
Here’s what you absolutely need to remember:
High standards: Fiduciaries are held to stringent legal standards with no forgiveness or allowance for a learning curve.
Core duties: Loyalty and impartiality, prudence and care, and compliance with all relevant rules and plan documents.
Balance is key: Always balance short-term needs against long-term sustainability and fairness.
Educate continuously: Keep learning, adapting, and asking questions to fulfill your fiduciary responsibilities effectively.
As demanding as your fiduciary role may seem, understanding these essentials equips you to serve with confidence and integrity.
Want to learn more?
Board Smart subscribers, explore these resources:
Prudent Fiduciary Transcript
Fiduciary Essentials Podcast
Fiduciary Fundamentals
Role of the Fiduciary Board
Fiduciary Duty and the Job of the Board
Powers of the Fiduciary Board
Contact rfunston@funstonadv.com or Slussow@boardsmart.com
Click here to order “Transforming the Dialogue: Fiduciary Essentials.”
