Certain providers also assert that they can be a 3(38) fiduciary at the level of a plan’s trading platform. In this kind of arrangement, it’s typical, for example, that a registered investment company (RIA) or a trust company offers 3(38) investment manager services to a plan sponsor via a tri-party agreement among the RIA/trust company, the plan sponsor, and the plan’s record-keeper. At the platform level, the plan sponsor agrees to use the services of a 3(38) to prescreen and assess the investment universe, sharply narrowing the list of prudent investment options to be made available to the plan. However, a 3(38) at the platform level doesn’t select the investment options that will actually appear on the plan’s investment menu. That duty is still left to the plan sponsor (or possibly another ERISA 3(38) that’s charged specifically with selecting, monitoring, and replacing the investment options on the plan menu). Many major record-keepers provide this kind of arrangement.But such providers ordinarily would not agree to be a 3(38) investment manager at the plan level (although some of these providers do carry out the discretionary selection/monitoring/replacing duties concerning the specific investment options on a plan’s investment menu). They assert in their agreements with plan sponsors that the sponsors retain the ultimate fiduciary responsibility to determine what particular investment options will actually be offered on a plan’s investment menu. As such, the sponsor would retain fiduciary responsibility (and liability) for the selection, monitoring, and replacement of the plan’s investment options. For example, if a plan sponsor placed an S&P 500 Index fund and a money market fund on the platform, a provider such as a trust company would retain fiduciary responsibility for the underlying holdings in the S&P 500 fund, but it wouldn’t be responsible for, say, the failure of the plan sponsor to provide sufficient investment options to permit participants to create a diversified portfolio.
Be careful what you ask for, you might get it. Many selling retirement plans will tell you what you want to hear. In most cases the devil is in the details.
Please comment or call to discuss what is really in your 401(k) plan contract.