For employers sponsoring retirement plans, there’s no escaping the concept of fiduciary responsibility. In basic terms, employers have the duty to:
- Act in participant’s best interests.
- Act prudently.
- Follow the terms of the plan document.
- Diversify investments.
- Ensure that plan expenses are reasonable.
Some employers fear it, and some don’t understand it. But many advisors are successfully serving retirement plan clients by bringing them fiduciary support services provided by 401(k) providers.
There are different levels of fiduciary support in the marketplace; and thus, it’s important for plan sponsors to understand the differences.
In general (very general), here are the five levels of fiduciary support services available in the marketplace in the order of highest to lowest fiduciary protection:
- ERISA Section 403(a): Trustee with full discretion.
- ERISA Section 3(38): Independent advisory firm with full responsibility for selecting and monitoring plan investments.
- ERISA Section 3(21): Independent advisory firm providing participant-directed investment choices.
- Due Diligence Support: An evaluation process with regard to the investment options providers offer under their retirement programs.
- Fiduciary Warranty: A Certificate of Warranty that is generally available to plan sponsors if they select at least one fund in designated asset classes.
There is no “best” one. Each plan sponsor must decide based on individual facts and circumstances such as availability, cost, and other factors.
Here’s the important takeaway: All fiduciary responsibilities cannot be delegated away. The plan sponsor always retains the responsibility to monitor the service provider on a periodic basis. But you can help.
Jerry Kalish is an EBA Advisory Board member and President of National Benefit Services, Inc., a Chicago-based third party administrator. He is a Guest Lecturer at John Marshall School of Law LLM Program in Employee Benefits and serves on the Great Lakes IRS Advisory Council for Tax Exempt and Government Entity Plans. Jerry has been publishing The Retirement Plan Blog since 2006. He can be reached via email at firstname.lastname@example.org and followed on Twitter.
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