Chances are, the typical 401(k) plan sponsor won'tpurposely engage in nefarious acts but they may unknowingly crossthe fiduciary line. What do you do? (Photo: Shutterstock)

They say the road to "the other place" is paved with goodintentions. Usually, this is someone else's problem. But whathappens when that "someone else's" problem trespasses onto yourdomain? Do you look the other way? Or will that implicate you? Doyou blow the whistle? Or will that get you fired?

Chances are, the typical 401(k) plan sponsor won't purposely engage innefarious acts. There may be times, however, when otherwiseinnocent and perhaps even common sense actions unknowingly crossthe fiduciary line (see "How Many Small Business Owners Accidentally TrapThemselves with This Treacherous 401k Fiduciary Conflict?"FiduciaryNews.com, August 13, 2019).

If you're a service provider,you may be in a better position tosee this transgression than the plan sponsor. This makes sense. Youhave more experience in the fiduciary world of retirement plans. Does thismean that you are under the obligation to say something when yousee something?

As you might expect, your answer can depend on which ERISAattorney you ask.

Now, I'm not an ERISA attorney (or even an attorney). I have,however, interviewed plenty of ERISA attorneys, some even on thisvery scenario. More important, I have served (and continue toserve) in various fiduciary capacities. The answer to thisquestion, therefore, is near and dear to my heart.

This is what I've been told:

First, in all cases, if you have any question on a matter ofthis import, even if you have the slimmest of doubts, speak with acompetent ERISA attorney. Don't take the word of a columnist, evenone who shares the same experiences with you. If it's serious, thenyou need to address it seriously.

OK, with all this legal disclaimer out of the way, what sort ofmileposts might offer some useful guidelines for you?

Start with your specific legal role. You may be a fiduciary tothe plan, but that doesn't mean you are a fiduciary in all aspectsof the plan. For example, if your service contract names you as aninvestment adviser, your fiduciary duties are limited to just that.If the payroll processor or the recordkeeper fails to perform theirfiduciary duties, you may not even be aware of it, let alone beheld accountable for it.

On the other hand, you might be aware of it. As an honest andupstanding member of the financial profession, you may feelobligated to report what you've discovered to the appropriate party(usually the plan sponsor). Mind you, though, this may more likelyfall under a moral obligation rather than a fiduciaryobligation.

That's one scenario. It may be the most likely scenario.

But what happens in the case where it's the plan sponsor whomakes a fiduciary faux pas? Who do you report that, too?

Some attorneys will tell you, if your fiduciary role is limitedand doesn't cover the area where the breach occurs, you're safe. Idon't know. I'm not a lawyer.

But I could see myself in that position as a fiduciary (luckily,this never happened in real life). All I could say is what I'd do.I'd talk to the plan sponsor about it, tell why it may appear tohave been an abrogation of fiduciary duty, and suggest the plan'sERISA counsel might be formally asked for an opinion on it.

If I thought it was an extreme situation, I'd put it all inwriting. I don't want to risk even the appearance of being a partyto any potential problem. But that's just me.

Finally, and here your move is clearest, what happens whenyou're a co-fiduciary to the plan? This is where you have an activerisk. You are on the hook for all matters pertaining to the plan.If you see the plan sponsor undertake what appears to be a breach,you have an obligation to address the situation immediately. Thislikely includes formally asking the plan's ERISA attorney foradvice.

And if the plan sponsor refuses?

Then you have no other option but to resign as co-fiduciary.

Remember, the client may not always be right, but he may thinkhe's right. That's OK, but it's no reason to go down with theship.

After all, it's somebody else's ship.

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

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