In today’s regulatory and legal climate I believe you should have an ERISA 3(21) investment advisor. This special type of investment advisor defined by the Employee Retirement Income Security Act (ERISA) acts as a co-fiduciary on your plan. The retirement plan is likely one of many hats you wear. Your plan’s best interest (fiduciary) will be the only hat your ERISA 3(21) investment advisor wears.
Is your 401(k) vendor a fiduciary?
Carol Buckman an ERISA attorney wrote an article entitled “Is Your 401(k) Vendor a Fiduciary?” She went on to say in some LinkedIn comments”… a common problem of corporate fiduciaries not always having enough time or training to fulfill their responsibilities well. I might add that another solution is for those fiduciaries to hire competent independent advisers to help them do it right”. You may benefit by having an ERISA 3(21) fiduciary by your side.
Have you received fiduciary training to know that you are potentially personally liable for the decisions you make regarding the plan? The decisions include what providers, advisors and investments you select. Carol’s article discusses the Tussey vs. Asea Brown Boveri (ABB) case. Fidelity was their recordkeeper which was found not to be a fiduciary. ABB was including the decision to hire Fidelity.
An ERISA 3(21) investment advisor is a fiduciary
ERISA section 3(21)(A) provides that a person is a fiduciary with respect to an employee benefit plan to the extent that such a person among other things, exercises any discretionary authority or control over the management of the plan or disposition of plan assets; renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan; or has any discretionary authority or discretionary responsibility in the administration of such plan.
An ERISA 3(21) acknowledges they are a fiduciary by signing a contract detailing what services they will provide in a fiduciary capacity. If you don’t have a contract from your current plan advisor detailing fiduciary status, then they intend NOT to be a fiduciary.
What fiduciary services do I get with an ERISA 3(21) investment advisor?
I believe the real benefit of an ERISA 3 (21) investment advisor as someone knowledgeable about ERISA acting as an architect for your plan. You are still the homeowner. They should help you with your three ongoing duties of monitoring your investments, monitoring your service providers and monitoring your administrative compliance. The following represent a list of fiduciary services they may provide:
ERISA 3 (21) Fiduciary Services
- Ongoing Investment Monitoring
- Provide ongoing monitoring of investment manager(s) or investments in relation to the criteria specified in the Plan’s investment policy statement or other written guidelines.
- Ongoing Investment Recommendations
- Recommend, for consideration and selection by The Committee, specific investments to be held by the Plan or, in the case of a participant-directed defined contribution plan to be made, available as investment options under the Plan.
- Recommend, for consideration and selection by The Committee, investment replacements if an existing investment is determined by The Committee to no longer be suitable as an investment option.
- All 404(c) Assistance
- Assist The Committee in identifying investment options in connection with the “broad range” requirement of ERISA 404(c).
- Qualified Default Investment Alternative Assistance
- Assist The Committee in identifying an investment product or model portfolio in connection with the definition of a “Qualified Default Investment Alternative” (“QDIA”) under ERISA.
- Provide ongoing monitoring and comparative evaluation of QDIA performance relative both to appropriate benchmarks, peer groups and specific goals established to measure the effectiveness of the offering.
Other value-added services
These are a few of the additional non-fiduciary services the ERISA 3(21) investment advisor may offer:
- Investment policy statement development assistance
- Service provider liaison
- Independent performance reporting
- Assisting with changes in investment options
- Education services to the plan committee
- Enrollment services
- Participant education
- Plan search support/vendor analysis
- Benchmarking services
- Assistance identifying plan fees
Independent fiduciaries or dependent providers
If you have followed my blogs, I believe you should consider the services of other fiduciary providers like an ERISA 3(38) investment manager, ERISA 3 (16) administrator, discretionary trustee or independent fiduciary. Your ERISA 3(21) investment advisor can help you sort through all the numbers and their various levels of risk transfer. Hopefully this team will give you even more confidence why you started with an ERISA 3(21) by your side.
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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