There are different types of retirement plan fiduciaries
Generally, an ERISA fiduciary is anyone who exercises discretionary authority or control over a plan or its assets, or who gives investment advice to a plan or its participants. If you sponsor a 401(k) plan, you'll most likely have discretion over it in some capacity, and this makes you a fiduciary. Anyone who has discretionary authority with respect to plan administration and/or who selects or monitors the plan's investment options is also an ERISA fiduciary—which may include some of your co-workers, such as members of the plan's benefits committee, as well as your plan’s financial professional. All fiduciaries, regardless of how narrow or broad their authority, must adhere to ERISA regulations.
Fiduciary duty isn't evenly spread
While every fiduciary has an equal obligation to follow ERISA, some fiduciaries have more responsibility than others. The named fiduciary sits at the top of the fiduciary hierarchy, and that could be you—as plan sponsor—or someone who you appoint. Responsible for controlling and managing the operation and administration of a plan, the named fiduciary can appoint other fiduciaries to help them with plan operations. Appointed fiduciaries may include the:
ERISA Section 402(a) named fiduciary—is the main fiduciary who oversees the selection and monitoring of all other plan fiduciaries and assumes most of the plan sponsor’s duties.
ERISA Section 3(16) plan administrator—handles the day-to-day operation of the plan, is named specifically in the plan document, and is responsible for any fiduciary responsibility not assumed by the ERISA Section 403(a) Trustee.
ERISA Section 403(a) trustee—has exclusive authority and discretion to manage and control plan assets, except when an investment manager is appointed to exercise such control.
ERISA Section 403(a)(1) directed trustee—doesn't have discretion equal to a 403(a) trustee. The 403(a)(1) directed trustee holds the plan’s assets without the ability to control them.
ERISA Section 3(38) investment manager—a registered investment adviser, bank, or insurance company that has exclusive authority and discretion to select and monitor the plan's investment options
ERISA Section 3(21) investment advisor—makes investment recommendations to the named fiduciary or plan trustee for a fee, but—generally—does not exercise discretion or control
These fiduciaries are bound by ERISA to act prudently and always in the best interest of your participants—and you’re in turn bound to monitor any fiduciary duly appointed.
There are also nonfiduciary retirement plan service providers
As a plan sponsor or named fiduciary, your duties don’t stop with monitoring other fiduciaries. You’re also tasked with selecting and overseeing nonfiduciary parties responsible for administration or safeguarding of plan assets—but who don’t exercise discretion. These service providers include:
- The plan recordkeeper, which is responsible for bookkeeping participant balances, contributions, and investments
- The plan-directed trustee (or custodian), who’s responsible for holding—but not controlling—plan assets
- The third-party administrator (TPA), who may be responsible for plan design advice, annual ERISA compliance, and some administrative functions—although not all plans use a TPA for these services
You can select and monitor the recordkeeper and directed trustee yourself, or you can appoint a fiduciary to do this for you. And remember that if you choose to delegate selection and oversight, you’ve got to monitor the party performing these duties.
Fiduciary and nonfiduciary parties in a plan
|402(a) named fiduciary||Plan-directed trustee or custodian|
|3(16) plan administrator||TPA (unless a named fiduciary)|
|403(a) trustee||Financial professional (for nonfiduciary duties)|
|403(a)(1) directed trustee|
|3(38) investment manager|
|3(21) investment advisor|
|Financial professional (for assumed fiduciary duties)|
The retirement plan fiduciary buck stops with you
Although there are different kinds of ERISA fiduciaries, all—including you—have a duty to your participants. And while outsourcing discretion or control to a trustee, administrator, or investment advisor can help you fulfill your ERISA duties, it doesn’t relieve you of them. Remember to oversee both hired fiduciaries and hired nonfiduciaries prudently, and to document your process for choosing and monitoring them.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
MGTS-P 44175-GE 06/21-44175 MGR0609211678050