Have you ever wondered what it means to be a “Fiduciary?” The word “fiduciary” seems to be thrown around a lot these days. A Fiduciary is someone who is responsible for someone else’s money and has a duty to what is in their best interest. According to Fi360, a provider of fiduciary studies for advisors and plan sponsors, the definition of a fiduciary is someone who is providing investment advice or managing the assets of another person and stands in a special relationship of trust, confidence, and/or legal responsibility. That’s right- legal responsibility. When you are a fiduciary to a retirement plan you not only have a moral obligation to do what is right, you also have a legal responsibility.
ERISA, the law that governs retirement plans, allows you to be able to outsource portions of your fiduciary responsibility. You can hire a qualified investment professional to take on a portion of your responsibility. There are two primary levels of investment fiduciary that you can outsource. Those are 3(21) and 3(38) levels of fiduciary, named primarily for the section of the ERISA codes that allows them.
Levels of Fiduciary:
- 3(21) Investment Fiduciary
- 3(38) Investment Fiduciary
A 3(21) Fiduciary is known as a Co-Fiduciary. Section 3(21) of ERISA allows you to hire an advisor that can share the responsibility with the investment committee. This person should bring a prudent process of monitoring the investments of the plan.
Section 3(38) of the ERISA code allows you to completely outsource your investment fiduciary responsibility to a qualified investment professional. Even though you hire a 3(38) fiduciary you can never completely eliminate all of your responsibility. The plan sponsor still has the responsibility to oversee the 3(38) to insure they are doing their job and replacing them if they are not.
You should ask yourself, “Am I a Fiduciary?” If you serve on the 401k committee you are most likely a fiduciary. If you have discretion over or decision making authority for investments in your company’s retirement plan, you are a fiduciary.
To learn more about your fiduciary responsibility attend one of our Retirement Plan Workshops.
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