Process and documentation

Part Two: Strategies to limit your liability

Among the most effective steps a fiduciary can take to limit liability are:

  • Establish and follow procedures for fiduciary decisions and plan oversight
  • Document the steps and reasons underlying fiduciary decisions

There is a significant amount of case law indicating that a fiduciary is not to be judged in hindsight. In other words, whether the fiduciary made the “right” decision is not dispositive of whether fiduciary liability will be imposed. Instead, the determination of whether a fiduciary has violated the Employee Retirement Income Security Act of 1974 (ERISA) focuses on whether the decision was the result of a prudent decision-making process.

Accordingly, one way to mitigate fiduciary risk is to establish and follow decision-making procedures and document the steps and reasoning underlying decisions (i.e., substantive and procedural prudence). Along those lines, to the extent the fiduciary relied on information and advice from others, documentation is critical to establishing the qualifications of such expert, the substance of the advice, and the scope for which the expert was consulted.

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Fidelity does not provide legal advice, and the information provided herein is general in nature and should not be considered legal advice. Consult an attorney regarding your plan’s specific legal situation.