Named fiduciary: Overview, definition, and example
What is a named fiduciary?
A named fiduciary is an individual or entity that has been explicitly designated in a contract or legal agreement to act in the best interest of another party, typically in a fiduciary capacity. This role is most commonly found in employee benefit plans, such as retirement or health plans, where the fiduciary is responsible for managing the plan's assets and ensuring that the plan operates in compliance with relevant laws, regulations, and the plan’s terms. The named fiduciary has a legal obligation to act with a high standard of care and loyalty, putting the interests of the plan participants or beneficiaries above their own.
For example, in a retirement plan, the named fiduciary may be the company’s board of directors, the plan administrator, or an external advisor who is responsible for managing the assets and making decisions regarding the plan’s administration.
Why is a named fiduciary important?
A named fiduciary is important because they hold the responsibility for ensuring that a plan or agreement is managed according to the highest standards of integrity and in compliance with applicable laws. In contexts such as retirement plans, healthcare benefits, or trusts, a named fiduciary's duty includes making decisions that are solely in the best interest of the beneficiaries or participants. This creates trust and accountability, as the fiduciary is legally bound to avoid conflicts of interest and ensure the proper handling of the assets or interests entrusted to them.
The designation of a named fiduciary helps to clarify accountability and management responsibilities, ensuring that there is a clear point of authority for decision-making and compliance oversight. It also helps protect beneficiaries by providing a legal recourse if the fiduciary fails to meet their obligations.
Understanding named fiduciary through an example
Let’s say a company offers a 401(k) retirement plan to its employees, and the company designates a specific member of the management team or an external financial advisor as the named fiduciary. This individual or entity has the responsibility to manage the investments within the plan, ensure that the plan complies with the Employee Retirement Income Security Act (ERISA), and act in the best interests of the plan participants. The named fiduciary would be legally accountable if any issues arise concerning the improper management of the plan’s assets.
In another example, a trust agreement may name a specific individual or a corporate entity (like a bank or trust company) as the fiduciary responsible for managing the assets of the trust. This named fiduciary is obligated to act in the best interest of the trust's beneficiaries, following the terms set out in the trust agreement.
An example of a named fiduciary clause
Here’s how a named fiduciary clause might appear in an employee benefit plan document:
“The Company designates [Name of Fiduciary] as the Named Fiduciary for the purposes of administering the Plan. The Named Fiduciary shall have full responsibility for ensuring that the Plan is operated in accordance with all applicable laws, regulations, and the terms of the Plan, and shall act in the best interest of the Plan participants and beneficiaries.”
Conclusion
A named fiduciary is a designated individual or entity with the legal responsibility to manage and oversee a plan or agreement in the best interest of the beneficiaries or participants. This role is crucial in ensuring compliance, fairness, and accountability in managing assets or making decisions related to employee benefits, trusts, and other fiduciary relationships. The named fiduciary’s duty of loyalty and care provides assurance to beneficiaries that their interests will be safeguarded and that any decisions made are in line with the terms of the agreement and legal requirements.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.