The Who's Who of Retirement Plan Fiduciaries

By Gordon Tewell, CFA, CPC, Principal

The goal of this article is to define the various types of plan fiduciaries and to help clarify the roles of each of these fiduciaries. 

A plan’s fiduciaries will ordinarily include the trustee, investment advisers, all individuals exercising discretion regarding investments and the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials.

A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation, but in many cases  plans may have several named fiduciaries. In some cases the decision making involved in operating a retirement plan make the person or entity performing them a fiduciary.

Named Fiduciaries

The ERISA Section 402(a) Named Fiduciary
The ERISA section 402(a) Named Fiduciary is the main fiduciary for a qualified retirement plan. This is the named fiduciary that has power over all other plan fiduciaries. The 402(a) fiduciary is the named decision-maker, not an advisor. This fiduciary has responsibility for selecting, evaluating and monitoring all plan fiduciaries and service providers to the plan.

The 402(a) Named Fiduciary must understand and adhere to principles of fiduciary prudence, and despite possible conflicts of interest due to in most cases that they will be an employee of the sponsoring employer, they are bound by the key tenets of fiduciary responsibility including acting in the sole interest of the plan participants and beneficiaries.

What is a 3(21) Named Fiduciary?

The 3(21) Named Fiduciary is often referred to as “The Mother of All Fiduciaries” because their primary role is to select, monitor, and benchmark the other fiduciaries and plan service providers.

The duties of a 3(21) Named fiduciary are generally set by ERISA and include the following: Monitor the assignment and performance of fiduciary duties of the Plan Administrator, Investment Manager, and Investment Advisors; provide oversight of the committee responsible for selecting and benchmarking plan service providers and provide an annual review of such; verify and document ERISA bond and fiduciary insurance coverage of all parties; create and maintain written documents covering the roles and responsibilities of plan fiduciaries

The ERISA Section 3(16) Plan Administrator

In the typical defined contribution plan, either the plan sponsor or another employee employed by the plan sponsor is named as the 3(16) plan administrator. The Plan Administrator will administer the Plan for the exclusive benefit of the Plan Participants and Beneficiaries, and in accordance with the terms of the Plan. If the terms of the Plan are unclear, the Plan Administrator may interpret the Plan, provided such interpretation is consistent with the rules of ERISA and Code §401 and is performed in a uniform and nondiscriminatory manner.

This plan administrator is the center of communications for the plan. For example, it has responsibility for providing important plan information to plan participants such as disclosures, Summary Plan Descriptions, and other notices and statements. In addition, the plan administrator has statutory responsibility for ensuring that all filings with the federal government such as form 5500s are made in a timely manner. The 3(16) is in charge of all communications with plan participants, the government, and any other communications to or from the plan.

The ERISA Section 403(a) Trustee
The ERISA section 403(a) Trustee is named in the plan documents as the fiduciary solely responsible and liable for the plan's investment options. More explicitly, the ERISA section 403(a) Trustee is "a person or a group of persons recognized as having exclusive authority and discretion over the management and control of plan assets."

A lot of confusion is created within the industry over the concept of the trustee. The confusion stems from common name used between an ERISA 403(a) Trustee and a "directed trustee" holding the assets of a qualified retirement plan in trust. The two roles are significantly different; one is a named fiduciary under ERISA with authority and discretion over the management and control of plan assets, while the other holds plan assets with no discretionary authority under ERISA.

Retained Fiduciaries

An ERISA Section 3(21) Non-discretionary Fiduciary

An ERISA 3(21) fiduciary comes in two flavors often times described as “full-scope” or “limited scope.” A full scope 3(21) is akin to an ERISA 402(a) Named Fiduciary. Fiduciaries who act as “Co-Fiduciaries,” fall under the 3(21) “limited-scope” category; specifically ERISA 3(21)(a). While there are independent experts who assume 3(21)(a) status, a 3(21)(a) does not accept discretionary authority and therefore, does not alleviate other plan fiduciaries of any potential fiduciary liability.

An ERISA Section 3(38) Investment Manager

An ERISA section 3(38) Investment Manager is not typically named in the plan document. Instead, it is retained via a written contract either directly by the plan sponsor or by the 3(21) Named Fiduciary. A 3(38) Investment Manager has discretionary responsibility to select, monitor and replace a plan's investment options. The plan sponsor or the 3(21) Named Fiduciary has the duty to ensure that the initial decision to appoint a 3(38) Investment Manager was prudent and that such decision continues to be prudent through a monitoring function.

In conclusion, there are a number of roles that may define a retirement plan fiduciary. What is most important, however, is to make sure individuals are aware of their fiduciary status, roles and liabilities as such.

Source: Innovest

Innovest Nonprofit Spotlight - Innovest Days of Giving

This year Innovest continued our "Winter Week of GIving" tradition. On the first day of giving, Innovest sent to thee: gently used clothing and toil-let-tries. On the second day of giving, Innovest gave to thee: money to the charities we love. On the third day of giving, Innovest gave to thee: decorated Project Angel Heart bags by the tens. On the fourth day of giving, Innovest gave to thee: lunch served and encouraging words. On the fifth day of giving, Innovest gave to thee: gifts for six adopted families we bring.

Organizations that Innovest was privileged to serve during the week included the Denver Rescue Mission, Project Angel Heart, and Colorado Gives Day. For the fourth year in a row 100 percent of Innovest employees participated in the Colorado Gives Day Corporate Challenge, earning an extra day off for their birthdays. Typical of Innovest, each day employees brought in snacks to incentivize and encourage co-workers to contribute and participate in the designated actitivities.

We were thrilled to have the opportunity to serve so many deserving organizations in 2017. Not only do these activities provide team-building experiences, but they provide already generous people with new opportunities to give back and find new nonprofits to support and be passionate about. Innovest is proud to be a company of generous people!

Three New Year's Resolutions for Plan Sponsors

It's time again to make resolutions for the New Year. If you're like me, some of these resolutions you'll keep and some....well, may not be so easy. In my view, simplicity is the key to successful resolution keeping, so I've considered three (yes, only three!) to consider.

Create a Fiduciary File

Make sure you have one - and that it is up to date. This file should contain all plan documents and amendments. Thanks to the world of emails and the Portable Document Format (pdf), records of all plan documents and amendments requires a lot less paper and are much easier to store. Client portals like Innovest's InnoVault, allow plan sponsors to upload documents to a secure server so they are available when needed. A fiduciary file not only maintains copies of plan documents, but it also houses documentation of the decisions made by the board and a written summary of the processes used to reach those decisions. Keeping documents related to all fiduciary decisions, such as hiring service providers, meeting minutes, changing and reviewing investment options, and other decisions, ensures that you're creating a paper trail for future board members and protecting yourself in case of an audit.

Review Plan Expenses

Plan sponsors have a fiduciary responsibility to ensure that the plan's fees and expenses are reasonable. Plan sponsors need to review the expenses charged to their plan and determine whether they are reasonable for the services provided. Plan sponsors should have received fee disclosures from their plan provider. Reviewing the disclosures and benchmarking those fees to those charged in similarly sized plans are the most effective ways to ensure that plan expenses are reasonable. Who knows? This exercise might also provide you the opportunity to renegotiate lower fees, and the savings to the plan could be substantial. That would be a great way to begin 2018!

Review Plan Providers

Plan Sponsors need to resolve to review the work of their providers to make sure they are doing the work promised. Reviewing the services standards, education offerings and other promised services ensures that your plan is receiving the services for which it has paid. Plan sponsors should review their plan providers by either doing the work themselves or by hiring a qualified consultant to evaluate the offerings in comparison to other providers in the marketplace. Vendors frequently introduce new tools and technologies, which provides an opportunity to learn about new tools and services that may add value to your participants.


Innovest's Employee Spotlight

For the fourth consecutive year, Innovest is sponsoring four students from Arrupe Jesuit High School. Students intern at Innovest through the school’s Corporate Work Study Program. The majority of students participating are from families below the poverty line and will be the first in their families to graduate from high school and hopefully college. Arrupe students attend classes four days per week and intern one day at a company, such as Innovest.

Leslie Astudillo-Rangel – Senior

Leslie is interning for the first time at Innovest. She organizes her schedule to work on homework and scholarships. She would like to attend Loyola University of Chicago. Life in college for Leslie will be busy as she hopes to double major in psychology and sociology, as well as earn a minor in journalism.

Anahi Sanchez – Junior

Anahi returns to Innovest for her third year. She keeps busy with school work and her work at Innovest. Her favorite subject is English. Her goal is to attend the University of Colorado at Boulder. She is still deciding on her course of study, but is interested in the medical field.

Fernando Rodriguez – Sophomore

This is Fernando’s second year at Innovest. He is well-known for his snappy bowties that he wears each week. Fernando has a great attitude and happily takes on any task assigned to him, even the tedious ones. Fernando ultimately wants to attend the University of Colorado at Boulder and become a doctor or a nurse.

Erika Esmeralda Guardado – Freshman

Erika is our new freshman worker. She demonstrates an ability to come out of her comfort zone by standing up for what is right, doing public speaking, and joining sports. Erika plans to attend college in Colorado and has set her eyes on the University of Colorado Boulder, Regis University, or University of Denver.

Fraud Scheme Targeting 401(k) Accounts Uncovered

A scheme to  fraudulently transfer funds from plan participant accounts by unauthorized persons has been uncovered by the Denver Division of the FBI. "According to the suit, the FBI’s Denver Division was contacted by in November 2016 by Great-West Financial’s VP of Internal Audit regarding allegations of fraudulent transfers from clients’ 401(k) accounts from JP Morgan. At that time, Great-West Financial had 20 participants affected and a loss of at least $1 million with a potential loss in excess of $2 million, according to the suit."   Click here to read more.

Source: ASPPA Net