Due to ERISA’s increased standard of care, the now defunct DOL rule and other potential regulatory replacements, plan sponsors are faced with the heightened importance to understand the fiduciary roles and responsibilities for their retirement plan. Below, we have outlined the ways of becoming a fiduciary, the differences between ERISA 3(21) and 3(38), and which is best depending on your plan and plan committee(s).
Who is a Fiduciary?
- Plan sponsor always has responsibility for effective set-up and operation
- ERISA requires plan sponsor to have a “named fiduciary”
- Committee
- Officers by title
- “Deemed” by role performed = 3(21)
- Renders investment advice on a regular basis for compensation
- Discretionary authority over management or disposition of assets
- Known as investment “adviser”
- “Appointment” = 3(38)
- Committee grants discretionary authority to manage assets
- Must be RIA, bank or insurance company
- Must acknowledge status in writing
- Known as investment “manager”
What is the Difference Between 3(21) and 3(38)?
- 3(21) Adviser
- Adviser makes recommendations
- Committee decides & retains responsibility for outcomes
- Adviser = co-fiduciary for advice given, not results from choices made
- 3(38) Manager
- Manager provides asset management for committee
- Liability shifts from committee to manager
- Committee retains liability for selection & monitoring of manager, including reasonableness of fees
What Fiduciary is Right for Your Plan?
- Fiduciary risk transfer under 3(38)
- Committee’s comfort of letting go of control
- Committee’s ability to perform effective due diligence
- Committee functioning operationally
- 3(21) may be more appropriate where:
- Have committee & have investment/financial expertise on committee
- Committee meets regularly
- Committee produces effective & timely decision making
- 3(38) may be more appropriate where:
- Do not have committee or do not have investment/financial expertise on committee
- Committee does not meet regularly
- Committee has difficulty making decisions & protracted time for implementation (especially important for underperforming options)
- 3(21) may be more appropriate where:
Added Benefits of 3(38) Fiduciary
- Employing subject matter expertise required by ERISA
- 3(38) investment manager frees-up committee to focus on:
- Plan design
- Plan performance
- Retirement readiness of participants
- Education and communications
PlanPILOT Can Help
With the current climate within the retirement plan environment, it can be easy for plan sponsors to inadvertently fall out of ERISA compliance. We encourage you to contact us at (312) 973-4911 or info@planpilot.com to discuss defining and managing fiduciary roles for your plan.
Watch Our Video For a More In-Depth Explanation
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Who is a Fiduciary? Plan sponsors need to carefully identify who its plan fiduciaries are and make sure those fiduciaries are aware of their role and properly trained. |
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