Over the last several years the term fiduciary has become main stream and been discussed in various forms. Do plan sponsors understand the importance and benefits of fiduciary roles in a sponsor plan?  Do they understand the positive impact a fiduciary can have for the plan sponsor and its participants? Does the plan sponsor, where they are the fiduciary, understand their roles and responsibilities? As we start 2015 it is a good time to review who the fiduciaries are to the plan and what their roles are.

According to the Department of Labor, under ERISA, the fiduciaries of a plan must:

  • Act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them.
  • Carry out their duties prudently
  • Follow the governing documents of the plan document
  • Diversify plan investments
  • Pay only fair and reasonable plan expenses from the plan assets.

Today, you hear of 3(16) Administrator, 3(21)(A) and 3(38) Investment Management fiduciaries and named fiduciaries under section 402(a).

Also see: "What will the New Year bring for retirement plans?"

The named fiduciary under 402(a) pertains to the employer sponsoring the plan, a committee reviewing the plan, or some other group who has control over plan assets. I find most employers do not know or understand who the fiduciaries of their plan are or take the time to understand their roles they need to fulfill in serving the plan. Knowing who the plan fiduciaries are is a good first step of plan governance, but there is still more to do to ensure a well-run plan.

The details

Plan sponsors can engage either or both a 3(21)(A) or a 3(38) fiduciary to help with running their plan. ERISA section 3(21)(A) states that an individual is a fiduciary “to the extent” he or she exercises discretionary authority or control over the management or administration for the plan; exercises authority or control with respect to the management or disposition of plan assets; and renders investment advice with respect to the assets or property of the plan or has discretionary authority or responsibility in the administration of a plan. A 3(38) fiduciary is an individual or a company that has the same responsibilities as a 3 (21)(A) fiduciary but they also are given control of their plan’s investment management.

Also see: "Open enrollment and financial stress."

Plan sponsors can also engage a 3(16) “administrator” fiduciary for their plan. This type of fiduciary has a limited number of responsibilities that centers around reporting and disclosure and preparing and distributing disclosure documents which can include summary plan descriptions, disclosure notices and benefit statements.

Plan sponsors need to understand that even though they may engage with one or more of these fiduciaries they still have a responsibility to review the services and fees of these fiduciaries with respect to the plan. In the end, even if fiduciary services are hired, the plan sponsor is the named fiduciary to the plan and ultimately responsible. Take the time to know who the fiduciaries are for your clients’ plans and ensure that all responsibilities are being met.

John Ludwig, ChFC, AIF, CRPS, is an LPL Financial adviser with LHD Retirement. He can be reached at jludwig@lhdretirement.com.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does adviser assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access