Did you buy a raincoat you're not supposed to get wet?Yeah, this is that frustrating. (Photo: Shutterstock)

Many years ago on a family vacation in Florida, my wife boughtme and my son matching Hawaiian shirts. We knew our young boy wouldeventually outgrow his shirt, but we figured we had at least thenext summer to enjoy wearing them. Alas, after the first washing itwas I who could no longer wear his shirt. It did, however, fit theboy.

Sometimes we never realize the expectation of a purchase. It'snot because we got duped. It's more likely because we neverbothered to read the ingredients.

Had we paid closer attention to the blend of cotton in thoseshirts, we might have gotten more time posing as thoseSchwarzenegger/DeVito “Twins” posters. Instead, my son got twoshirts — one too small and one just right. I just get stuck payingthe bill.

Making a mistake as a parent with matching apparel is one thing.Making the same kind of mistake as a plan sponsor for yourretirement plan is quite another (see “The One Topic Every 401k Plan Sponsor Must KnowRight Now: Fiduciary Education Curriculum (Part III),”FiduciaryNews.com, May 21, 2019). Plan sponsors who don't read theingredients of their service providers might just be saddled withliabilities they expected to have mitigated.

ERISA makes it very clear what pieces need to be in place forplan sponsors to relieve themselves of at least a tiny bit offiduciary liability. Really, it's not that hard. And the benefitscan be quite enticing.

In the 1990s, a state-led initiative began to upgrade the“Prudent Man Rule” to a “Prudent Investor Law.” At the time,lay-trustees were concerned they'd be on the fiduciary hook for thetrusts they served. These weren't professional trustees (i.e., thekind you find in bank trust departments or, in some states, lawfirms). These were everyday people, friends and families who wereonly trying to help. They didn't want to be saddled with aliability they couldn't define.

Hence, while it started one by one in state legislatures, thePrudent Investor concept became universal. All thesenonprofessional trustees had to do in order to mitigate theliability associated with managing trust investments was to hire aprofessional to manage those investments.

ERISA adopted a similar provision with its “Prudent Expert”definition. Like those innocent trustees of the Prudent Investorera, plan sponsors could alleviate fiduciary liability associationwith plan investments by hiring an investment professional.

Actually, it's a little more than that. They must give thatprofessional discretionary authority regarding plan investments. Itis only when investment discretion shifts to the service providerthat the associated liability also shifts. Otherwise, the liabilitystays with the plan sponsor.

Again, it's not a difficult rule, but it's a nuance too oftenoverlooked. It's as though some plan sponsors aren't reading theingredient label on the package they're buying.

And if things go wrong, something a lot more than a 100% cottonshirt will shrink.

READ MORE:

A 3-word fiduciary rule — Carosa

The 'Fiduciary Rule' versus the 'Rule of Fiduciary'— Carosa

Do you have the 'knows' to be a fiduciary? —Carosa