Fiduciary Responsibilities

In today’s volatile investing environment, selecting your company’s 401(k) or 403(b) plan investment options on your own can seem like more than a full-time job—not to mention potentially putting your organization at risk of litigation if these investments persistently fall short of their expected returns, have less than competitive fees or can’t be liquidated when employees retire. For many sponsors, shifting the fund selection process to an ERISA 3(38) investment manager can free up time and attention to focus on other aspects of the organization, managing employees, and many tough-to-outsource tasks. We review three key factors for hiring a 3(38) investment manager below.

The Employee Retirement Income Security Act of 1974 (ERISA) sets forth the requirements under which defined contribution plans, such as 401(k)s and 403(b)s, must be managed for the benefit of the plan participants. The catch-word that has been the subject of various lawsuits is fiduciary responsibility. Employers and plan sponsors who have not taken the proper steps to mitigate their liability with respect to the provisions of Section 404(a) of ERISA run the potential for drawn out litigation and the financial risk associated with failing to adhere to the “Prudent Person Rule.” This requirement may cause you to consider whether you wish to continue to assume the role of a Section 3(21) plan fiduciary or outsource investment oversight to a Section 3(38) investment manager.