By Diane Capone, CEBS, TGPC
The Department of Labor’s (DOL) recent regulations on Service Provider Fee Disclosure as well as regulations on investment advice to participants has caused us to have a fresh look and renewed interest in the meaning of the various fiduciary roles. This article is a view from the top to give some definitions and meaning to the various fiduciary roles.
Just to clarify up front, these fiduciary roles that we will discuss ONLY apply to ERISA (Employee Retirement Income Security Act of 1974) plans and NOT to Governmental or Church plans. So they do NOT apply to public K‐12 school districts, public community colleges or public universities and, of course, they do not apply to church plans (unless the church plan has opted to be covered by ERISA).
Generally, in addition to anyone specifically named in the plan as a fiduciary, individuals are ERISA fiduciaries, whether they acknowledge it or not, to the extent they:
- Exercise any discretionary authority or responsibility in the administration of the plan
- Exercise any authority or control concerning the management and disposition of plan assets
- Render investment advice with respect to plan assets, or have any authority or responsibility to do so, for a fee or other compensation, other than regular compensation received as an employee of the sponsor.
The fiduciary definitions in ERISA fall into the following categories and we will focus on three of these categories:
1. Named Fiduciary (Plan documents commonly name the plan sponsor/employer.)
2. Plan Administrator
4. Investment Manager
5. Investment Advisor
6. Anyone else with a duty of loyalty and a duty to act with discretion or authority to any extent.
This article will look at three of the above: ERISA Sections 3(16) Plan Administrator; 3(21) Investment Advisor and 3(38) Investment Manager.
3(16) Plan Administrator
The plan administrator is tasked with the day‐to‐day decisions in operating the plan. Some of these decisions and tasks are as follows:
- Timely sign and file forms required with the federal government (such as Form 5500)
- Make sure plan contributions are timely remitted
- Keep the plan document up to date for legislative and other amendments
- Ensure that the required disclosures are provided to plan participants
- Assist in interpreting and following the plan document
- Develop procedures for plan loans and plan distributions
- Be responsible to hire plan service providers.
Practice Pointer: The plan administrator should not be confused with a third party administrator (TPA). Also the plan administrator has responsibility for the operation of the plan, but is not responsible for selecting plan investments.
3(21) Limited Scope Investment Advisor
A 3(21) limited scope investment advisor fiduciary is an advisor who renders investment advice for a fee with respect to any monies, investments, or other property of a plan, or has responsibility to do so. The advisor serves in a co‐fiduciary capacity to the plan and shares fiduciary responsibility and liability with other plan fiduciaries. A 3(21) fiduciary advisor provides the necessary investment expertise to assist in the required investment decision‐making process.
Some of the responsibilities of the 3(21) investment advisor are:
- Recommend investments to the plan sponsor
- Monitor those investments and suggest replacements as appropriate
- Provide participant education
- Assist with the development of the Investment Policy Statement
- Advise the plan sponsor in following and documenting a fiduciary process.
Practice Pointer: A 3(21) advisor provides counsel and guidance but does not have discretion. Responsibility for investment decisions still rests with the plan sponsor.
3(38) Investment Manager
The term “investment manager” means a fiduciary who assumes full discretionary control over the investment selection and monitoring decisions for the plan. In hiring a 3(38) fiduciary adviser, plan fiduciaries remove themselves from the ongoing investment decision‐making process.
Responsibilities of the 3(38) investment manager include:
- Manage the investment process of the retirement plan
- Relieve plan sponsor of the responsibility for the investment manager’s decisions
- Make investment decisions with full discretionary authority
- Have sole responsibility for the day‐to‐day investment decisions (plan level
Practice Pointer: The plan sponsor retains a duty to prudently select and hire the investment manager and make sure the investment manager is carrying out its appointed duties. An investment manager must be a registered investment adviser under federal or state law, a bank as defined under the Investment Advisers Act of 1940, or an insurance company that is qualified to perform investment services under the laws of more than one state.
This information is not to be considered as tax advice. In publishing this material, the NTSAA is not rendering legal, tax, accounting or other professional advice.
Additional Fiduciary Duties
ERISA defines what it means to be a “fiduciary” in Section 404(a) setting forth that a fiduciary shall discharge their duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan.
The duty of loyalty to the plan participants and their beneficiaries requires that in discharging these duties, the fiduciary’s decisions must be made solely looking to the interests of the participants and beneficiaries. Section 404(a) also requires that in discharging these duties, the fiduciary must act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
Practice Pointer: The advisor to an ERISA plan may act as a non‐fiduciary where they provide the platform or product that is used by the plan but do not provide investment advice to the plan or plan participants. However, if the advisor provides investment advice for a fee they are held to the higher fiduciary standard described above. The DOL publishes a very useful booklet entitled “Meeting Your Fiduciary Responsibilities.” This booklet is a good compliance guide for plan fiduciaries and is helpful in identifying the various requirements together with tips for employers. This booklet is available HERE