Is your 401k plan advisor really a true fiduciary?

401k & Retirement Plan Management

As a 401k fiduciary, you’re required by law under ERISA to hire a professional investment advisor, assuming you lack the competence, skill, and experience to make investment decisions for your plan. Fortunately, hiring an expert plan fiduciary is the easiest way to reduce your personal liability.

ERISA identifies two types of fiduciary advisors. One simply provides investment recommendations for your 401k plan, while the other actually makes the investment decisions for your 401k plan.

ERISA 3(21) INVESTMENT ADVISOR

A 3(21) investment advisor makes recommendations which plan fiduciaries may use to manage investments. For example, they may recommend a list of mutual funds they consider suitable, then monitor and suggest replacement funds when appropriate. The plan fiduciaries ultimately make the investment decisions, however. A 3(21) investment advisor is generally not considered a plan fiduciary.

ERISA 3(38) INVESTMENT MANAGER

Only banks, insurance companies, or registered investment advisors can be a 3(38) investment manager. A 3(38) has a much broader scope of responsibility to the plan and its participants. Instead of solely providing advice, they actually make investment decisions. Plan sponsors always hold a residual fiduciary duty because they’re responsible for selection and oversight of the 3(38) investment manager.

We serve as either a 3(21) fiduciary or a 3(38) fiduciary

Our fiduciary capacity is dependent on you, your participants, and your 401k plan needs. We will serve your retirement plan in the most appropriate and effective way for your unique situation.

If you don’t know what your current fiduciary’s status is, you should ask! As a plan fiduciary yourself, you must know what fiduciary responsibility and liability your 401k plan advisor has.