Welcome to the third installment of our most recent series for pharmacy owners on 401k fiduciary responsibility. The first installment gave you a brief overview on what it means to be a fiduciary for a pharmacy 401k plan. The second installment discussed the duty of exclusive purpose.  This installment will focus on the duty you have to the plan participants to be prudent with your choices. 

Many pharmacy owners say they understand that they are a fiduciary for their pharmacy 401k. However, when asked if they know the true definition of a fiduciary, they most often say no. It is important to understand what this means because the required duty of prudence is mentioned twice.

A fiduciary (as defined by ERISA) is a person that acts with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and like aims.

This definition can be a little much when you try to decipher it.  The way we interpret it is you have to make the best decision possible (for the benefit of the plan participants) with the available information. For example, if you were presented an option that decreased the overall fees in your plan with the same level of service and similar investment options, it would be prudent to make the change. This would make sense to most reasonable and prudent people and would satisfy your duty of prudence.

There are also other things involved in the duty of prudence. It's no coincidence that prudence is mentioned twice in the definition of a fiduciary.  The first thing you must keep top of mind is as a fiduciary you are considered an expert when making decisions about the plan (including investment decisions). This is the case even if you are ill-suited to do so and ignorance is no excuse if you lack the skills, education, and training. By having a 401k plan, you have committed to helping your employees manage a huge part of their retirement assets whether you acknowledge it or not.

This all sounds a little scary to some extent. There is good news though. There is something you can do to help satisfy this requirement. You have the right to hire prudent experts to help with your responsibility. The key word here is help. You can never completely remove the fiduciary responsibility you have over the plan. However, some advisors and brokers will tell you this is possible. This is inaccuarte and dangerous. Just keep this in mind, even if you hire experts, you still have to oversee them to make sure they are making prudent decisions for the plan participants. Therefore, the fiduciary responsibility never goes completely away.

Having a pharmacy 401k is a big commitment. Understanding what it means to be a fiduciary can help you better serve the plan participants. Being prudent with your decisions and hiring prudent experts can go a long way towards satisfying your fiduciary responsibility.