Tip for February 2014
The required duties of a fiduciary baffle most retirement plan executives.
If you are unsure about your retirement plan role, you could be at risk. “Fiduciary” is a trendy term these days, but it carries with it both tactical responsibility and legal liability. The three key types of fiduciaries under ERISA include:
- 3(16) Plan Administrator;
- 3(38) Investment Manager; and
- 3(21) Investment Advisor.
Knowing the difference between the fiduciary roles is essential to protecting oneself amidst a volatile regulatory environment.
Tips:
(1) Remember the differences between the three fiduciary roles:
- 3(16) Plan Administrator: Independent provider that has the same legal status as the responsible plan fiduciary; responsible for all four categories of ERISA fiduciary duty. Does NOT provide any other operational services to the plan.
- 3(38) Investment Manager: Serves as discretionary investment manager on behalf of the plan (acts on investments in place of the plan sponsor). Only addresses the investment category under ERISA, not the other three categories (governance, administration, and controls). Vendors in the 3(38) category should be compliant with the Global Investment Performance Standards (“GIPS”) or equivalent.
- 3(21) Advisor: Makes investment recommendations to the plan sponsor, but decision making and discretion still resides with the plan sponsor. Only addresses a portion of a retirement plan’s investment services needs.
(2) Each vendor that acts in a fiduciary capacity should have a contract with the plan. The agreement form should provide a precise list of services to be delivered, not just references to code sections in ERISA. Clearly defined roles and responsibilities for everyone involved with the retirement plan helps to delineate where responsibility and liability begin and end with each provider.
(3) According to the U.S. Supreme Court, vendors that have multiple fiduciary roles for the same ERISA plan is a no-no. Ensuring that providers stay within their single respective areas of expertise and detailing each provider’s specific legal relationship to the plan are best practices for plan sponsors and their vendors.
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