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Get Your Fiduciary Right – Before it gets You

Named Fiduciary "Mother of All Fiduciaries"

Companies are not required to sponsor a retirement plan for their employees. However, the act of sponsoring a retirement plan does mean that the Plan Sponsor (read company) is now subject to the Employee Retirement Income Security Act of 1974 (ERISA). At its origin, ERISA was comprised of approximately 280 pages, some 43 years later we have a library of rules, regulations, laws and guidance to help interpret ERISA.

Every retirement plan is required by ERISA, section 402, to have a Named Fiduciary identified in their Plan Document. The Named Fiduciary is sometimes referred to as the “Mother of all Fiduciaries” because the Named Fiduciary is responsible for the Plan’s wellbeing and has the authority to delegate fiduciary and non-fiduciary capacity to other people and/or entities. Almost all plans name the Plan Sponsor – company – as their Named Fiduciary.


Failing ERISA Standards

Remember at the beginning of this article we talked about how expansive the compliance side of ERISA has become. Something else that is important to know is that ignorance of the law, rules and regulations of ERISA is not an allowed defense for not fulfilling your fiduciary duties with respect to your retirement plan. In fact, there can be personal liability for not fulfilling one’s duties to the retirement plan if that failure creates a breach to the plan.

Some quick points of interest regarding fiduciary responsibility and the cost of failing to meet ERISA standards. Since 2010, over 78% of plans have failed government -led fiduciary audits; resulting in over $5.4 billion in fines. An average Department of Labor (DOL) fine has risen to over $600,000. One final tidbit, The DOL hired over 1,000 new regulators in 2013 to help with auditing 401(k) plans. Retirement plans can be an incredible benefit to both the Plan participant and to the sponsor – but, it is clearly critical to do the Plan right.

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Delegate To A 3(38) Investment Manager

Recall that we said the Named Fiduciary has the power to delegate responsibility and authority to act as a fiduciary to other people or entities that are qualified to take on such responsibility? One of those fiduciary functions that can be delegated is known as an ERISA Section 3(38) Investment Manager. By delegating the investment functions to a 3(38)-investment manager and the advisor accepting that role in writing, the Named Fiduciary can relieve themselves of the liability associated with investment selection for the Plan. A Registered Investment Advisor (RIA) can serve as an ERISA section 3(38) investment manager. The Plan Sponsor still has a duty and responsibility to monitor the 3(38) advisor to ensure no fraud or obvious incompetence occurs by the advisor. It is at semi-annual 401(k) committee or Pension Advisory Committee meetings that the 3(38) investment fiduciary reports on their responsibilities and such reporting is documented in meeting minutes.


So, given the mountains of potential rules, laws and regulations to keep abreast of and implement; doesn’t it make sense to hire a person/entity to do that for you? Given that the liability for those investment duties can be moved to the delegated fiduciary, it makes all the sense in the world to incorporate such an action. As a RIA and acting in our role as a 3(38) advisor for our clients, not only have we taken on the fiduciary responsibilities and liabilities as well as documenting our actions in semi-annual Pension Advisory Committee meetings; but, our clients have also enjoyed over a 30% reduction in total plan fees once they have hired us. More for less – that seems like an idea that has staying power to it.

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