There are many service providers touting fiduciary warranties and risk management. However, there is only one way to transfer the responsibility and liability to an expert. That is for the service provider to sign an agreement, covering all funds in the plan, specifying they will accept the ERISA 3(38) investment manager duties.

One of the most positive developments in the retirement plan business is the proliferation of independent ERISA §3(38) fiduciaries. While the §3(38) defined investment manager has been in ERISA since the beginning in 1974, there has been a dramatic increase in the number of registered investment advisors offering this option to their clients.The uniqueness of the §3(38) proposition is that the §3(38) fiduciary has discretionary authority, assuming the liability of the fiduciary process from the plan sponsor. It’s a nice proposition because many 401(k) plan sponsors don’t do a job of handling it on their own or with the help of a financial advisor. Development of an investment policy statement (IPS), selection and review of investment options based on that IPS, and offering education to participants for participant directed plans isn’t an easy task. Please note that the hiring of an ERISA §3(38) is a fiduciary function, so plan sponsors may be on the hook if they hire a poor §3(38) fiduciary.

Many retirement plan advisers will profess to be accountable for the fund selection in your plan. However unless the adviser agrees in writing to be the ERISA 3(38) investment manager to the entire plan, there is no relieve for the plan sponsor. The plan sponsor holds all the responsibilities for the fund in their plan.

Please comment or call to discuss how this affects you and your company.