ERISA Fiduciary Duties: A Study Guide for AIF Candidates

ERISA Has Been Generating Fiduciary Liability for 50 Years — and Most Advisors Still Don't Know It Well

The Employee Retirement Income Security Act of 1974 turned 50 years old in 2024. In that time, it's generated more fiduciary lawsuits, DOL enforcement actions, and plan committee anxiety than any other piece of legislation in financial services history. If you're pursuing the AIF designation from Fi360, ERISA is not background knowledge — it's the core of everything the exam tests. This guide breaks down the ERISA concepts you must understand to pass the AIF exam and protect your clients' plans.

Who Is an ERISA Fiduciary? The Five-Part Test

ERISA defines a fiduciary functionally — meaning your fiduciary status depends on what you do, not what you're called. The Department of Labor's regulations establish a five-part test for determining whether someone is an investment advice fiduciary under ERISA:

1. You render advice as to the value of securities or other property, or make recommendations as to investing in, purchasing, or selling securities or other property
2. On a regular basis
3. Pursuant to a mutual agreement or understanding
4. That the advice will serve as a primary basis for investment decisions
5. That the advice will be individualized based on the particular needs of the plan

All five criteria must be met under the traditional five-part test. However, the DOL has periodically attempted to expand this definition through rulemaking (most recently the 2024 fiduciary rule, which faced ongoing legal challenges as of 2026). AIF candidates should understand both the traditional test and the regulatory landscape around expanded fiduciary definitions.

What Are the Core ERISA Fiduciary Duties?

ERISA Section 404 establishes four core fiduciary duties for plan fiduciaries. These are not aspirational guidelines — they are legally enforceable obligations:

• Duty of Loyalty (Exclusive Benefit Rule): Act solely in the interest of plan participants and beneficiaries, and for the exclusive purpose of providing benefits and defraying reasonable plan expenses. No other consideration — including self-interest, employer convenience, or third-party pressure — can override this duty.
• Duty of Prudence (Prudent Expert Standard): Act with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use under the circumstances then prevailing. This is the standard of a knowledgeable expert, not a reasonable layperson.
• Duty to Diversify: Diversify plan investments to minimize the risk of large losses unless under the circumstances it's clearly prudent not to do so. Concentration in a single asset (including employer stock) triggers this duty.
• Duty to Follow Plan Documents: Act in accordance with the plan documents and instruments governing the plan, insofar as those documents are consistent with ERISA.

ERISA Section 406: Prohibited Transactions You Must Know

Section 406 prohibits fiduciaries from engaging in transactions that could benefit parties in interest at the expense of the plan. The statute is categorical — if a transaction falls within Section 406, it's prohibited regardless of intent or outcome, unless an exemption applies.

Prohibited transactions include any sale, exchange, or lease of property between the plan and a party in interest; any lending of money between the plan and a party in interest; any transfer of plan assets to or use of assets by a party in interest; and any self-dealing by a fiduciary. A "party in interest" includes the plan sponsor and its affiliates, service providers to the plan, plan participants and beneficiaries, and their family members.

Self-dealing is the most common fiduciary breach advisors fall into: recommending investment products that pay undisclosed compensation to the advisor or the advisor's firm, without disclosure and consent. The AIF exam tests this extensively because it's so common in practice.

Section 408: Exemptions from Prohibited Transactions

Section 408 provides statutory exemptions that allow certain transactions to proceed despite falling within the Section 406 prohibition. The most relevant exemptions for AIF candidates include:

• 408(b)(2): Service arrangements between a plan and a service provider (including investment advisors) are exempt if the services are necessary, the contract is reasonable, and compensation is no more than reasonable. This is the section that requires the fee disclosure regulations most advisors are familiar with.
• 408(b)(6): Loans from the plan to parties in interest (e.g., participant loans) are exempt if they meet specific criteria including reasonable interest rates and adequate security.
• Prohibited Transaction Class Exemptions (PTCEs): The DOL grants class exemptions for specific transaction types that are broadly beneficial but technically prohibited. Advisors using discretionary models or certain fund structures should understand which PTCEs apply to their practice.

Section 409: Personal Liability for Fiduciary Breaches

This is the section that makes ERISA fiduciary responsibility personal. Under Section 409, a fiduciary who breaches their duties is personally liable to make the plan whole — restoring any losses caused by the breach plus any profits made through improper use of plan assets. Fiduciary liability can't be transferred to the plan sponsor entity — it attaches to the individual who acted as fiduciary.

Courts have applied Section 409 to plan committee members who approved high-cost investment lineups without due diligence, to advisors who recommended proprietary funds for compensation-related reasons, and to plan sponsors who failed to monitor service providers for years at a time. The case law here should be required reading for any AIF candidate: Tibble v. Edison International (2015) established that fiduciaries have an ongoing duty to monitor investments, not just a one-time duty at selection.

Co-Fiduciary Liability and Delegation

ERISA also imposes liability on fiduciaries who knowingly participate in another fiduciary's breach, conceal it, or fail to remedy it once discovered. This is co-fiduciary liability. It's why plan committee members who rubber-stamp advisor recommendations without independent review can be personally liable even if the advisor made the original bad decision.

Fiduciaries can delegate investment management responsibility to a qualified investment manager under ERISA Section 3(38). When a 3(38) manager is properly appointed and given full discretionary authority, the delegating fiduciary is not liable for the manager's investment decisions — only for the prudent selection and monitoring of that manager. This distinction is heavily tested on the AIF exam.

The EBSA's Role in Enforcement

The Employee Benefits Security Administration (EBSA), a division of the DOL, is responsible for enforcing ERISA. EBSA conducts both civil investigations and civil litigation against fiduciaries. It also coordinates with the IRS on excise taxes for prohibited transactions — violations trigger excise taxes of 15% of the transaction amount per year, with 100% penalty if not corrected. Understanding the EBSA's investigative triggers (participant complaints, Form 5500 anomalies, industry sweeps) helps plan advisors understand what documentation and processes actually protect their clients in the event of scrutiny.

Study ERISA Through Scenarios, Not Memorization

The AIF exam won't ask you to recite Section 406. It will describe an advisor recommending a fund that pays revenue sharing to their broker-dealer without disclosure, and ask you to identify which fiduciary duty was violated and what the correct response is. Scenario-based practice is the only way to develop the applied understanding the exam requires.

SimpuTech's AIF AI tutor generates ERISA-focused scenario questions, walks you through the reasoning at each step, and tracks which fiduciary duties and Prudent Practices steps you need the most work on. Practice ERISA scenarios free at SimpuTech →

Related reading: The Fiduciary Standard Explained for AIF Candidates and AIF Certification Exam: Key Topics and How to Prepare.

Certification details verified against fi360.com as of March 2026. Requirements are subject to change — confirm current details at fi360.com before registering.