Understanding the Roles of a Fiduciary

Offering a 401(k) is a great benefit for a business and its employees, but more often than not, business owners and/or your employee administrators are unaware of at least some of the duties they’re required to manage and the fiduciary role they take on. Employers are also often unclear if any of their 401(k) providers share in the duties and risk.

You May Be at Risk Without Even Knowing It

While many providers will provide investment “suggestions” and other support, most do not take on duties or fiduciary risk, which means the employer and supporting staff are on their own. For example, it’s common for the designated employees for your company plan to be responsible for selecting and reviewing the investment options offered in the plan. Many 401(k) providers tout their investments and expertise, yet will take no responsibility, let alone a fiduciary role, in supporting your plan’s investment roster. Rather, these risks and responsibilities lie squarely on their clients shoulders—many who aren’t financial experts, don’t have the time to be, and most importantly, don’t want any part of these risks.

Who’s typically at risk?

  • Business owner(s)
  • Employees that manage the plan for your company
  • Named trustee at your company
  • Named investment fiduciary at your company

These can be the same person, team or various groups at your company.

Who’s not at risk?

  • Broker reps, insurance agents and financial consultants/advisors
  • Recordkeepers, third-party administrators, and directed trustees
  • Attorneys and actuaries
  • Accountants

Your plan service providers generally are not.

Providers That Take on ERISA 3(38) Advisory Status Take on a Fiduciary Duty for You

If your company currently works with a registered investment advisor (RIA) supporting your plan, there are two roles they may take on (or none at all). Compare the differences and you can see the protections and advantages that an ERISA 3(38) can offer your company:

ERISA 3(38) Advisor

  • Takes on the investment management role for your company in managing the investment options available in your plan (full discretion of selection, ongoing monitoring and replacing of investments offered)
  • Plan sponsor (your company) relinquishes discretion and influence in roster decision
  • Plan sponsor monitors the work of the advisor to ensure the 3(38) is performing its duties
  • Plan sponsor is protected from suits and liability for investment roster decisions
  • Saves the company the time, energy and costs of managing the investment roster

ERISA 3(38) Advisors takes on the fiduciary duty and liability for your firm for this aspect of your plan

ERISA 3(21) Advisor

  • Tasked with recommending and/or assisting the plan sponsor in investment roster decisions
  • Full discretion remains with the plan sponsor/your company
  • Plan sponsor must conduct all the due diligence and work to monitor the fund lineup
  • The 3(21) has no legally defined discretion and takes on no risk or culpability for the decisions made
  • Any suit, audit finding or other issues and liability remain with the plan sponsor

ERISA 3(21) Advisors do not have discretion and provide only partial liability protection for your plan

ERISA 3(38) Advisors are financial experts in retirement plans and investment offerings. As an added benefit for you and your company, the ShareBuilder Advisors Investment Committee does the ERISA 3(38) work for every ShareBuilder 401k client.

Learn more about how our Investment Committee supports our client plans.