Benefits and Compensation

Vendors Segment ‘Fiduciary’ Services as DOL Treads Water on New Definition

While most retirement plan sponsors and their vendors think being deemed a plan fiduciary is an “all-or-nothing” proposition, it is in fact becoming a growing continuum of service-provider job titles and responsibilities, one industry expert suggests.

For example, a survey of 100 randomly selected, non-client plan sponsors conducted by retirement planning and wealth management firm Unified Trust in 2010 found that 50 percent of the sponsors didn’t think of themselves as a fiduciary; another 50 percent said they thought obtaining a fiduciary warrant would protect them from a participant lawsuit, the firm’s founder told a national conference of pension professionals Oct. 28.

Gregory Kasten, founder and chief executive of Unified Trust, based in Lexington, Ky., assured hundreds of attendees at the American Society of Pension Professionals & Actuaries conference at National Harbor, Md., that those two beliefs were wrong. He stressed that it was critical for the attendees, as retirement plan service providers, to watch for “improper delegation” from plan sponsor clients that may think, erroneously under ERISA, that they can hand off their fiduciary responsibility.

Tiers of Fiduciary Roles Emerging 

As a new definition of “fiduciary” to replace that of 1974 approaches from the U.S. Department of Labor — which conference attendees learned on Oct. 29 from panelist Assistant Secretary of Labor Phyllis Borzi is getting closer to an unspecified unveiling date — different tiers of fiduciary roles are emerging, Kasten said.

In his presentation, he explained that the most common fiduciary types and roles usually span the following spectrum, from least to greatest levels of responsibility:

  • directed trustee (or custodian);
  • co-fiduciary;
  • functional fiduciary;
  • delegated manager;
  • qualified professional asset managers, or “parties in interest,” known as QPAMs; and
  • the named fiduciary, which is usually the plan’s own sponsor, trustee, committee and/or administrator.

As court cases have proven, the first two in that list often ”disappear” in court if a participant lawsuit over plan investment is filed because a 1995 ruling by the 3rd U.S. Circuit Court of Appeals well-known in the retirement planning industry,  Moench v. Robertson, found directed trustees to be essentially “immune from judicial inquiry” because they lack discretion, instead taking instructions from the plan that hires them that they must follow.

Lately, Kasten said, more providers are offering their services to defined contribution plans as ERISA Section 3(38) investment managers. This role may offer investment advice and monitoring without actually managing the plan’s portfolio, but nonetheless has discretionary control over assets in the plan.  A 3(38) fiduciary can only be a bank, an insurance company or a registered investment adviser, but it “has no requirement for liability insurance,” Kasten told the ASPPA audience. The 3(38) fiduciary does assume legal responsibility for the decisions it makes, which helps the plan sponsor to better manage and mitigate its fiduciary risk.

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