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.
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.
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.