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What You Should Know About Retirement Plan Fiduciary Support
Jun 08, 2022
Within the context of employee retirement plans, a fiduciary is responsible for ensuring the plan is managed with the best interest of participants in mind. ERISA identifies three different types of employee benefit plan fiduciaries and specifies reporting and disclosure requirements for them.
Each of these types of fiduciaries serves a unique role in plan management, administration and support. It’s important to understand these roles so you choose the right type of fiduciary for your plan.
3(16) Advisor: Overseeing Plan Administration and Operations
The first type of fiduciary is known as a 3(16) advisor, whose main responsibilities are overseeing plan administration and daily operations. This fiduciary’s tasks typically include the following:
•Distributing summary plan descriptions, benefit statements and required disclosures to participants
•Maintaining and interpreting the plan document
•Ensuring timely deposit of participant contributions
•Fulfilling reporting requirements
•Soliciting and enrolling new members
You can hire an outside third-party administrator (TPA) to handle these responsibilities if you prefer. However, this does not relieve you of your fiduciary duties and liabilities. For example, you still must oversee the TPA’s activities and monitor the fees charged to make sure they are reasonable.
Note that TPAs usually will not agree to sign Form 5500 or be named the plan administrator. You will retain this responsibility as the plan sponsor, along with fiduciary liability for administering all other plan duties and monitoring the prudence of the administrator selection.
3(21) Advisor: An Investment Professional
The second type of fiduciary is known as a 3(21) advisor who serves as a financial advisor to the plan. This fiduciary role is usually filled by an outside investment professional who charges a fee. 3(21) advisors make recommendations and offer advice about how plan assets are invested, and sometimes help ensure that the plan is complying with ERISA’s investment-related provisions.
Importantly, 3(21) advisors do not actually make investment decisions — this responsibility lies with the plan administrator. A 3(21) advisor might present the plan administrator with a list of investment options that meet the plan’s objectives. As a result, the fiduciary responsibility and liability of a 3(21) advisor is limited.
3(38) Advisor: Going a Step Further
The third type of fiduciary is known as a 3(38) advisor. This fiduciary goes a step further than a 3(21) advisor by actually making investment decisions and purchasing securities. Banks, insurance companies and Registered Investment Advisors (RIAs) usually serve as 3(38) advisors.
A 3(38) advisor has full fiduciary responsibility to manage the retirement plan and make investment decisions that are in the best interests of plan participants while maintaining transparency about these decisions. This includes providing investment performance reports to the plan sponsor. While the 3(38) advisor has the final authority to make investment decisions, the 3(16) fiduciary can replace the 3(38) advisor if performance is deemed unsatisfactory.
Choosing the Right Fiduciary
As a plan sponsor, it’s critical that you understand the three different types of employee benefit plan fiduciaries and their specific roles so you choose the right one for your particular circumstances.
We can answer any questions you have about retirement plan fiduciary support and help you make the right choice for your plan. Give us a call at (803) 791-1111 or send us an email if you’d like to talk about your plan in more detail.
Information is provided by William Amick & Blake Amick and written by Don Sadler, a non-affiliate of Cetera Advisor Networks LLC.
This post is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
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Cetera is under separate ownership from any other named entity. 171 Lott Ct, West Columbia, SC 29169
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The plan document rule —Sponsors must follow the plan document unless the terms of the document contradict ERISA rules. 4. Investment diversification rule — Sponsors must offer a wide range of investment options that enable participants to meet their investment needs and diversify their investments accordingly. Management of plan investments has historically created the most potential liability for sponsors, who are held to a “reasonableness” standard with regard to investment diversification. Establishing and adhering to a process for managing plan investments and ensuring diversification by creating an investment policy statement is the cornerstone of risk mitigation. Retirement Plan Governance and Sponsors’ Responsibilities There’s a long list of specific sponsor responsibilities related to retirement plan governance. 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How We Can Help We can answer any questions you have about your retirement plan fiduciary responsibilities and help you remain in compliance. Give us a call at (803) 791-1111 or send us an email if you’d like to talk about your plan in more detail. Information is provided by William Amick & Blake Amick and written by Don Sadler, a non-affiliate of Cetera Advisor Networks LLC. This post is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought. A diversified portfolio does not assure a profit or protect against loss in a declining market.
