Charles Epstein

ContactCharles D. Epstein, CLU, ChFC, AIF® is the founder of The 401k Coach® Program, an organization dedicated to providing great clarity, confidence and capabilities to Advisors, Plan Sponsors and Plan Participants.
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The 401k Coach

Fiduciary Hierarchy Continued
Charlie Epstein    Wednesday, April 14, 2010 13:21

The highest level of fiduciary status in an ERISA plan is that of the named Fiduciary or the Full Scope 3(21) fiduciary. I discussed the roles and responsibilities of the 3(21) in my last blog. Now let’s look at the other categories of Fiduciaries and their role and responsibilities.

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  1. The Plan Administrator: ERISA section 3(16) and 101, 102, & 103 describe the specific fiduciary responsibilities and duties of the Plan Administrator. Primarily they ensure all filings with the federal government(form 550 etc)are made in a timely fashion, makes important disclosures to plan participants (i.e. summary plan description and other 404(c) communications to keep the plain compliance), hires service providers, and fulfills other responsibilities as set forth in the plan documents. The Plan Administrator should not be confused with a Pension administrator or Third Party Administrator (TPA). Normally the Plan Sponsor reserves the functions of the Plan Administrator for itself, or may appoint an independent fiduciary to serve as the ERISA section 3(16)Plan administrator.
  1. The Trustee: ERISA section 403(a) and 403(b) describe the duties of the Trustee. The Trustee is a person or group of persons recognized as having exclusive authority and discretion over the management and control of the plan. The Trustees responsibilities are specific and distinct from the responsibilities of the Named Fiduciary who has a duty to control, manage and administer the plan. It is not uncommon to have the Named Fiduciary serve simultaneously as the Trustee. The Trustee, if a separate person is accountable to the Named Fiduciary. If the Trustee is a “directed Trustee” it means they must take direction from a fiduciary with a higher level of authority.
  1. The Investment Manager: ERISA section 3(38) defines the “Investment Manager as a Fiduciary with full discretionary powers for selecting, monitoring and (if necessary) replacing the investment options (i.e. trust assets) in a qualified plan. The 3(38) Manager is appointed and monitored by the Named Fiduciary3(21).The Investment Manager must ensure that the objectives of the plan’s portfolio are being met, and as such, has at its sole discretion the ability to hire and replace fund managers, service providers, custodians and others.
  1. The Investment Advisor: The Investment Advisor to a plan is always a limited scope 3(21) Fiduciary- except when appointed as an ERISA section 3(38) Investment Manager. At a minimum they must meet a fiduciary standard of care and like all fiduciaries under ERISA, bears a “duty of loyalty” to the plan and the participants and beneficiaries of the plan. This requires the advisor to:
o        put the plan participant’s best interests first.
o        Act with prudence; that is, with the skill, care, diligence and good judgment of a professional.
o        Not mislead plan sponsors, or plan participants, but provide conspicuous, full and fair disclosure of all material facts.
o        Avoid conflicts of interest but fully disclose and fairly manage, in the plan participant’s favor, unavoidable conflicts.
o        The Investment Advisor does not replace the Trustee, act with unilateral discretion with respect to plan assets in a portfolio and has no authority to establish its own fees or the fees paid to other fiduciaries. (It can only propose its fees).
 
A few observations: the difference between a limited scope 3(21) Investment Advisor Fiduciary and a 3(38) Investment Manager Fiduciary is true explicit ERISA discretion. A limited scope 3(21) has no discretion within the context of ERISA. They can give advice freely to the plan sponsors, who may or may not choose to accept or reject their advice... They bear little or no liability for the consequences of their advice and certainly limits the role and value of a 3(21) Investment Advisor to plan sponsors in the fiduciary context of ERISA. Remember an Investment Advisor is not and never will be the full scope3(21)Fiduciary unless the advisor’s name actually appears in the plan documents as the Named Fiduciary, with the full authority to hire, monitor, fire and replace service providers and other fiduciaries.
 

I hope this helps you navigate the fiduciary high seas and assists you in managing your duties and responsibilities more effectively and ensuring the Named Fiduciary Plan Sponsors you work with understand their role, duties and responsibilities and everyone else’s. Happy Plan Managing!

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