Fiduciary insights for business owners: Don’t fly solo

By MassMutual Staff

By MassMutual Staff

Posted on Aug 21, 2019

Today’s jets are complex machines crammed with high-tech equipment and software to help pilots fly right. But all the expensive gear still hasn’t replaced an essential flying companion in some aircrafts: the human navigator.

Navigators help pilots make the best choices when flying, tracking the plane’s route, projecting time of arrival, watching the weather, avoiding hazards and helping to ensure the smoothest flight possible. Retirement savings plans such as 401(k)s have a parallel: fiduciary services that help employers that sponsor 401(k)s and other retirement savings plans navigate their duties and responsibilities.

For those who aren’t experts in employee benefits law, plan administration or investments, fiduciary responsibilities may seem daunting. It doesn’t have to be so.

Help is available, not only from financial professionals who support retirement plans but also from many providers that make fiduciary support services available to assist plan sponsors. The services are sometimes available at no additional cost as part of the recordkeeping package.

There are essentially two types of fiduciary support available: administrative and investment. Which services make sense for a particular plan depends upon the employer’s needs and the relative amount of control the company wants to exercise over specific decisions regarding its retirement plan.

On the administrative side, many providers make available 3(16) fiduciary services that take on the administrative responsibilities of the plan as well as some of the fiduciary liabilities associated with it. While the administrative duties are numerous, there are some key tasks that a 3(16) administrator should be expected to handle:

  • Preparing and signing off on plan-related documents, the most common being Form 5500 that is required by ERISAand the IRS Code.
  • Monitoring and notifying the sponsor of any plan irregularities.
  • Preparing and mailing participant notices and disclosures.
  • Tracking participant vesting, loans, and withdrawals as well as eligibility for them.
  • Reviewing and managing suspensions of deferrals for hardship withdrawals and separation distributions.

Meanwhile, there are essentially two levels of investment fiduciary support: 3(38) and 3(21). Which one makes the most sense for a sponsor depends upon what level of control the firm wants to exercise over plan investment decisions and what level of protection makes the sponsor feel comfortable.

The highest level of protection is offered by a 3(38) fiduciary service. A solid 3(38) service should automatically update a retirement plan’s fund choices, including at the sponsor level, to

ensure compliance. That means sponsors can shift the burden of monitoring investment choices for compliance to a third party. But there are limitations.

Most 3(38) services require sponsors to select their investment options from a specific, limited list of approved funds. Some sponsors find that arrangement reassuring. However, others want more investment flexibility so some service offering now provide for an expanded lists of available funds, giving sponsors more latitude to customize investment choices for their plan. Sponsors and their financial professionals need to closely evaluate both the quality as well as the range of available choices when making a decision on a 3(38) service.

For sponsors who want greater discretion over fund selection, a 3(21) fiduciary service may make sense. A 3(21) service enables sponsors to share their fiduciary investment responsibility with the 3(21) advisory firm and retain the ultimate decision-making authority. Sponsors remain responsible for making ongoing investment line-up changes in order to maintain the core asset class requirements.

When opting for a 3(21) fiduciary protection service, sponsors are typically required to choose at least one investment option from each of four core asset classes (cash equivalent, domestic bond, domestic equity, and foreign equity) from a pre-selected list.

Before deciding upon a service, sponsors may ask if the fiduciary services firm will review the plan’s existing investment lineup for inclusion on an approved list. Some sponsors may want to retain specific funds already on their retirement plan menu. The fiduciary support firm should review the fund lineup to ensure sponsors have the best investments for the plan with an eye towards reducing disruptions for participants.

The multitude of administrative as well as investment duties can and often does trip up plan sponsors. But with the wide availability of fiduciary services, there is no need to fly solo in running a retirement plan.

Obtaining a fiduciary protection service retains the support of an expert navigator to help ensure the plan flies right.



ERISA - The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.