Fiduciary responsibilities guide for small business plan sponsors

Last updated: January 26, 2026

This guide clearly defines plan sponsor fiduciary responsibility and how to avoid common pitfalls by using integrated retirement and payroll solutions to reduce risk. Employers will also learn how to better protect their businesses, stay compliant and help employees build a more secure financial future.

Fiduciary responsibilities key takeaways:

• ERISA fiduciary responsibilities require fiduciaries to act solely in the plan participants’ best interests, not the company’s.
• Core fiduciary duties – such as care, loyalty and obedience – should guide every plan decision.
• Investment oversight is a major fiduciary risk area, but 3(21) and 3(38) fiduciary financial advisors can help address it.
• Accurate payroll and retirement data are critical to avoiding common fiduciary breaches.
• Integrated and embedded retirement technology can simplify compliance and strengthen oversight.
• Strong fiduciary practices protect employees’ retirement savings and the business itself.

Small businesses that offer a 401(k) plan provide a meaningful way to support long-term financial well-being for employees. But a retirement plan benefit comes with an important legal obligation – fiduciary responsibility.

401(k) plan sponsors are fiduciaries under the Employee Retirement Income Security Act (ERISA). This role carries specific duties designed to protect plan participants and their beneficiaries. However, many small business owners and HR managers don’t realize that fiduciary responsibility applies even when plan administration or investment management duties are outsourced to third parties.

Who is a fiduciary?

Under ERISA, a fiduciary is any individual or entity that exercises discretionary authority or responsibility over the administration of a retirement plan, has authority or control over its assets, or provides investment advice for a fee.

In a typical small business 401(k) plan, fiduciaries include:

• The business owner or employer sponsoring the plan
• The named plan administrator
• Trustees who control plan assets
• Members of an investment or retirement committee
• A fiduciary financial advisor providing advice under ERISA

Even if outside providers are hired – such as a recordkeeper, third-party administrator or investment advisor – small business owners may still be a fiduciary. They often assume that outsourcing eliminates their risk, but ERISA makes it clear: Delegating tasks does not eliminate fiduciary responsibility. As such, small businesses remain responsible for selecting, monitoring and replacing service providers, if necessary.

What is fiduciary responsibility?

To understand fiduciary responsibility in business, it helps to examine ERISA’s core principle: Fiduciaries must act solely in the interests of plan participants and their beneficiaries. In other words, they’re expected to:

• Put employees’ retirement interests ahead of the best interests of the business
• Make informed, prudent decisions
• Follow plan documents and the law
• Ensure fees and diversified investments are reasonable

Ultimately, ERISA fiduciary responsibility is designed to safeguard retirement plans, so they’re managed with care, transparency and accountability.

What are the main fiduciary responsibilities?

A common example of fiduciary responsibility under ERISA is regularly reviewing plan investments and fees to confirm they remain appropriate for participants. Fiduciaries also have duties of care, loyalty and obedience.

Duty of care

The duty of care requires fiduciaries to act with the same care, skill, prudence and diligence that a knowledgeable professional uses in a similar situation. They must:

• Make informed decisions based on data, benchmarking and expert input
• Stay educated on changes to 401(k) fiduciary rules and regulations
• Document decisions and processes

Duty of loyalty

The duty of loyalty requires fiduciaries to act exclusively in the best interests of plan participants and beneficiaries. They must:

• Avoid conflicts of interest
• Validate that compensation and fees are reasonable
• Never using plan assets for personal or business gain

For example, selecting a provider solely because they offer other business services without evaluating whether the plan fees are reasonable could violate this duty.

Duty of obedience

The duty of obedience requires fiduciaries to follow the written plan document and follow applicable laws, including ERISA and IRS rules governing qualified retirement plans. Failure to operate the plan according to its terms, such as making late contributions, can result in compliance issues and fiduciary breaches.

What are the key 401(k) fiduciary responsibilities?

A comprehensive understanding of 401(k) fiduciary responsibility includes oversight across several core areas, including investments and service providers.

Basic fiduciary duties

At a foundational level, plan sponsors must:

• Maintain the plan for the exclusive benefit of participants
• Monitor plan fees to confirm they are reasonable and competitive
• Review plan design and features periodically
• Stay compliant with operational requirements

Overseeing investments

Investment oversight is one of the most scrutinized fiduciary duties. Key responsibilities include:

• Selecting a diversified menu of investment options
• Monitoring performance against benchmarks
• Reviewing investment fees and expense ratios
• Removing or replacing underperforming funds

To help manage these tasks, many plan sponsors work with a fiduciary financial advisor who serves in one of two capacities:

1. 3(21) fiduciary provides investment advice while the sponsor retains final decision-making authority.
2. 3(38) fiduciary takes full discretion over investment selection and monitoring.

Although outsourcing investment management to a financial advisor does not remove all fiduciary responsibility, it can significantly reduce exposure and provide professional guidance aligned with ERISA standards.

ERISA fiduciary services for small businesses

                                                 

Fiduciary role	What it means for a small business	Key responsibilities	Who makes final decisions?	When it makes sense for small employers
ERISA 3(21) fiduciary	A professional advisor provides guidance, but the employer retains discretionary control of plan lineup	Recommends investments, benchmarks fees and may provide advice on plan design	Employer/owner approves all investment decisions	Works well for owners who want advice but prefer to stay involved
ERISA 3(38) fiduciary	An investment professional fully manages the plan’s investment lineup	Selects, monitors and replaces funds without employer approval	3(38) fiduciary makes investment decisions	Best for owners who want to minimize investment-related liability and time commitment

Overseeing service providers

Selecting and monitoring service providers (e.g., recordkeepers, third-party administrators, advisors and payroll providers) is a critical plan sponsor fiduciary responsibility. Fiduciaries must:

• Conduct a prudent selection process
• Compare fees and services
• Document decisions
• Monitor performance and conflicts of interest

Helping participants

ERISA 401(k) fiduciary responsibility also extends to participant support. Plan sponsors should:

• Provide clear and timely plan communications
• Deliver required disclosures
• Offer access to education and tools that help employees make informed decisions

What are plan administrator basics?

Strong administration is essential to fulfilling fiduciary duty. It includes maintaining plan records and hiring a qualified 401(k) provider.

Maintaining plan records

Accurate and timely recordkeeping supports both compliance and fiduciary oversight. Necessary records include:

• Employee contributions and employer matches
• Distributions and loans
• Participant eligibility and enrollment
• Form 5500 filings

Maintaining these records with payroll and retirement systems that don’t communicate effectively often results in errors. Employers can reduce the risk of mistakes by using integrated solutions that automate and synchronize data feeds in real time.

Hiring a qualified 401(k) provider

Evaluate providers by looking for:

• Experience with small business plans
• Clear fee transparency
• Compliance and audit support
• Access to fiduciary services, such as 3(21) or 3(38) coverage

Employers may also want to prioritize providers offering embedded payroll and retirement solutions that can streamline administration, enhance compliance and create more seamless experiences.

Protecting your plan and your people

For many small business owners, plan sponsor 401(k) fiduciary responsibility can feel overwhelming. The good news is that they don’t have to manage it alone. By leveraging expert partners, modern technology and integrated retirement solutions, plan sponsors can:

• Reduce fiduciary risk
• Improve plan oversight and decision-making abilities
• Deliver better participant outcomes without increasing administrative burdens

Ultimately, fiduciary duty becomes a manageable and meaningful part of building a stronger future for a business and its employees.

Frequently asked questions

M-859251-2026-01-05

None of the content provided on our websites, or the output of any tools ADP Retirement Services provides should be interpreted or relied upon as investment advice or a recommendation or endorsement of any investment or strategy. Investors should carefully review the materials and disclosures provided to them and engage their own qualified financial professional before making any investment decisions. ADP does not give legal or tax advice to individuals as part of its services.

Only registered representatives of ADP Broker Dealer, Inc. (ADP BD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 may offer and sell ADP retirement products or speak to retirement plan features and/or investment options available in such ADP retirement products, and only associated persons of ADP Strategic Plan Services, LLC (SPS) may speak to any investment management or advisory services provided by SPS. SPS is an SEC Registered Investment Adviser. Registration does not imply a certain level of skill or services