Overview
Fiduciary Solutions
A retirement plan is a valuable benefit for your employees. However, it is also a responsibility. Are you aware of your legal responsibilities? Are you satisfying them? InWest works with you, your investment professional and other strategic partners to help you understand your obligations as a plan fiduciary, or we can assist you in out-sourcing most of those responsibilities to an independent ERISA 402(a)/3(16) fiduciary.
What is a Fiduciary?
A fiduciary is legally and ethically committed to judge wisely and objectively and demonstrate that all processes and procedures align with the goals and objectives of those being served.
Fiduciaries have essential responsibilities in a retirement plan. Because they act on behalf of plan participants and their beneficiaries, they are subject to the highest legal and ethical standards of conduct.
With these fiduciary responsibilities comes potential liability. Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan or profits made through improper use of the plan’s assets resulting from their actions.
Retirement Plan Fiduciaries
ERISA 402(a) Named Fiduciary
The party with authority to control and manage the operation and administration of the plan. This is the “Alpha” fiduciary in a plan who oversees all plan service providers and ensures that the services they provide meet the highest standards under the law.
The Plan Sponsor is the 402(a) Named Fiduciary by default.
ERISA 3(16) Plan Administrator
The party responsible for managing the plan’s day-to-day operations, including the annual filing of Form 5500 with the Department of Labor.
The Plan Sponsor is the 3(16) Plan Administrator by default.
ERISA 3(38) Investment Fiduciary
The party who has full fiduciary responsibility for plan investment decisions, subject to the terms of the plan documents and its investment policy statement. Typically, this includes selecting, monitoring, and replacing investment options offered to plan participants. The Plan Sponsor and all other plan fiduciaries are relieved of all fiduciary responsibility for the investment decisions made by the 3(38). The Plan Sponsor is responsible for monitoring whether the 3(38) is performing the services, but it does not need to second-guess its investment decisions.
ERISA 3(21) Investment Fiduciary
The party who provides investment recommendations to the Plan Sponsor. The Plan Sponsor retains ultimate decision-making authority for the investments and may accept or reject the recommendations. Both share the fiduciary responsibility.
Functional Fiduciary
An individual not serving in a “named fiduciary” capacity may nonetheless be a fiduciary under ERISA’s fiduciary definition. ERISA provides that a person is a plan fiduciary to the extent he/she:
- Exercises any discretionary authority or control over the management of a plan or the disposition of plan assets;
- Renders investment advice to a plan for a fee or has any authority or responsibility to do so; or
- Has any discretionary authority or discretionary responsibility over the administration of a plan.
Fiduciary Outsourcing
Most Plan Sponsors and other fiduciaries are unaware of their duties under ERISA or that they can be held personally liable to restore any losses to the plan caused by their actions or inactions.
The good news is that ERISA permits Plan Sponsors to outsource most of their responsibilities and related liability as retirement plan fiduciaries!
InWest and our partners offer industry-leading fiduciary outsourcing solutions that save time, mitigate risk, and improve participant outcomes.