1 401(k) Fiduciary Toolkit Sponsored by ishares Prepared by The Wagner Law Group Fiduciary Status Understanding the Different Roles and Status of 401(k) Fiduciaries
2 IMPORTANT INFORMATION The Wagner Law Group has prepared this guide. BlackRock does not represent that this information is accurate and complete, and it should not be relied upon as such. This guide is intended for financial advisors who provide advisory services to 401(k) plans in a fiduciary capacity under the Employee Retirement Income Security Act of 1974, as amended (ERISA). This guide is intended for general informational purposes only, and it does not constitute legal, tax or investment advice on the part of The Wagner Law Group or BlackRock. BlackRock is not affiliated with The Wagner Law Group. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. For Financial Professional Use only Not for Public Distribution SY-9/10
3 ishares 3 There is a great deal of confusion about fiduciary responsibilities under the Advisers Act, FINRA, state law and ERISA and how these separate rules interact with one another in the context of a 401(k) plan. This guide, prepared by The Wagner Law Group, will help you understand how plan fiduciaries can assume different roles under a plan, resulting in different varieties of fiduciary status and titles. These differences have significant implications for you and your 401(k) clients, given the different types of responsibilities arising under ERISA depending upon one s fiduciary status. For more information, visit our Fiduciary Resource Center at To learn how to use ishares ETFs in 401(k) plans, call the Retirement Plan Sales Team at
4 4 Fiduciary Status Executive Summary One of the most striking features of ERISA is that it can override the terms of an agreement and redefine the responsibilities of the contracting parties. Plan sponsors and their financial advisors should pay particular attention to this aspect of ERISA. ERISA may or may not allow a sponsor to shift investment responsibilities to advisors, depending on the role assumed by the advisor. Financial Advisors Providing Non-Fiduciary Investment Services Many advisors (e.g., broker-dealers) only offer non-fiduciary assistance to plan clients. To avoid furnishing fiduciary investment advice, the advisor must ensure that the plan sponsor does not rely too heavily on the advisor s recommendations. Plan sponsors should conduct their own investigations before making any fiduciary decision. Proper records should also be maintained to demonstrate procedural compliance with ERISA. KEY CONCEPT An advisor that does not intend to serve a plan in a fiduciary role can still become subject to the fiduciary standards of ERISA, if the sponsor has a practice of rubber stamping the advisor s recommendations or relying on them as the primary basis for its investment decisions. When utilizing the services of non-fiduciary advisors, plan sponsors should request and evaluate any information concerning the advisor s potential conflicts of interest. Financial Advisors Serving as Investment Advice Fiduciaries or 3(21) Fiduciaries Any advisor who provides investment advice to plan clients is a fiduciary, even if the advisor has not been formally appointed as such by the sponsor. Sponsors are prohibited from following the advisor s recommendations blindly, but rather must investigate the advisor s qualifications, and confirm that reliance on the advice is reasonably justified. An advisor generally cannot provide conflicted advice under ERISA, and the sponsor should review and confirm any conflicts-related disclosures from the advisor. KEY CONCEPT A fiduciary advisor s responsibilities are determined by the actual investment advice provided, and they are not necessarily determined by the terms of the advisory agreement.
5 ishares 5 To determine if reliance is reasonably justified, the plan sponsor should review the advisor s methods and underlying data. The sponsor s review should be properly documented, demonstrating that its reliance was reasonably justified in accordance with the fiduciary standards of ERISA. Financial Advisors Serving as Investment Managers or 3(38) Fiduciaries Certain advisors are offering to serve as the plan s investment manager. Once an investment manager is appointed, the sponsor is no longer responsible for the investments under the manager s control. However, the sponsor remains responsible for selecting the manager prudently and monitoring the manager s performance. KEY CONCEPT Under ERISA Section 3(38), an investment manager means any fiduciary who has the power to manage, acquire or dispose of plan assets, and who has acknowledged in writing that it is a fiduciary with respect to the plan. In addition, the fiduciary must be a RIA, bank or insurance company. When appointing an advisor to serve as the plan s investment manager, the plan sponsor should confirm that the advisory agreement properly includes a written acknowledgement of the advisor s fiduciary status and that the other conditions of ERISA Section 3(38) have been met. Role of Plan Sponsor as Named Fiduciary (and/or Plan s Trustee) Plan sponsors should confirm that their plan document properly gives investment authority to the plan sponsor in its capacity as either the plan s named fiduciary or trustee. As a procedural matter, any advisory agreement and other fiduciary-related documentation should reflect whether the plan sponsor is exercising its investment authority as the named fiduciary or trustee.
6 6 Fiduciary Status Introduction One of the most striking features of ERISA is that it can override the terms of an agreement for planrelated services, redefining the responsibilities of the respective parties and imposing penalties for failing to satisfy the revised terms of the agreement. Plan sponsors and financial advisors who provide investment assistance to plans should pay particular attention to this aspect of ERISA. ERISA imposes various investment duties on plan sponsors, and the sponsor may or may not be able to shift investment responsibilities to the financial advisor, depending on the role assumed by the advisor. Financial Advisors Providing Non-Fiduciary Investment Services Non-Fiduciary Advisors Do Not Offer Investment Advice Not all financial advisors who provide investment services to plan sponsors are fiduciaries for ERISA purposes. Many advisors are associated with broker-dealers, offering non-fiduciary investment assistance to their plan clients. Although their recommendations may constitute investment advice from a securities law perspective, their guidance is not intended to be viewed as fiduciary investment advice within the meaning of ERISA. Under the current regulatory definition of investment advice under ERISA, a person is deemed to provide fiduciary investment advice if: (1) such person renders advice to the plan as to the value or advisability of making an investment in securities or other property on a regular basis, (2) pursuant to a mutual agreement or understanding (written or otherwise), such services will serve as a primary basis for investment decisions, and such person will render advice based on the particular needs of the plan. 1 It is almost certain that the assistance routinely provided by advisors will trigger the first part of the investment advice definition as described above, given the expansive manner in which this portion of the regulatory definition is phrased. To avoid triggering the second part of the investment advice definition, the advisor must ensure that the plan sponsor does not rely on the advisor s recommendations as the primary basis for its investment decisions. Thus, when offering advisory services to sponsors in a non-fiduciary capacity, advisors have a peculiar incentive to discourage sponsors from relying on their investment recommendations too heavily or exclusively. 1. DOL Regulation Section (c).
7 ishares 7 Non-Fiduciary Advisors Can Accidentally Become Plan Fiduciaries The courts have held that if a plan sponsor relies too heavily on a financial advisor s investment advice, then the advisor is subject to the fiduciary requirements of ERISA, even if the parties have agreed in writing that the advisor will not be providing fiduciary advice. These cases typically involve situations in which the plan sponsor routinely rubber stamps the advisor s recommendations, effectively creating an understanding between the parties that the recommendations are serving as the primary basis for the sponsor s investment decisions. 2 KEY CONCEPT A financial advisor who does not intend to serve a plan in a fiduciary role can still become subject to the fiduciary standards of ERISA, if the sponsor has a practice of rubber stamping the advisor s recommendations or relying on them as the primary basis for the plan s investment decisions. Plan Sponsors Should Conduct Own Investigation into Plan Investments In light of the fact that non-fiduciary advisors strive (or should strive) to limit a sponsor s reliance on their investment recommendations, sponsors should conduct their own investigation of the advisability of any proposed investment decision. Although the advisor s recommendations should be considered, the plan sponsor should also weigh all other relevant factors in making its own investment decision. The sponsor s investigation should be conducted in a manner that is consistent with the prudent man standard of care under ERISA. Additionally, the sponsor should document and maintain records of all relevant information in order to demonstrate compliance with ERISA s fiduciary standards. For more information concerning the prudent man standard of care under ERISA and its various component fiduciary duties, please see the Core Fiduciary Manual for Plan Fiduciaries and Their Investment Duties Under ERISA. Since a non-fiduciary advisor does not provide fiduciary advice, the plan sponsor does not share any fiduciary responsibility with the advisor, and the sponsor alone remains responsible for its investment decisions under ERISA. 2. See, e.g., Stanton v. Shearson Lehman/American Express, Inc., 631 F. Supp. 100 (N.D. Ga. 1986). See also, e.g., F.W. Webb Co. v. State Street Bank and Trust Co., No. 09 Civ (S.D.N.Y. Aug. 12, 2010); Ellis v. Rycenga Homes, Inc., 484 F. Supp. 2d 694 (W.D. Mich. 2007).
8 8 Fiduciary Status Non-Fiduciary Advisor s Recommendations May Be Conflicted Sponsors should bear in mind that any non-fiduciary advice may include recommendations that are conflicted. If the advisor is associated with a broker-dealer, the advisor s recommendations are subject to the suitability standard under applicable securities law. 3 As interpreted by the Financial Industry Regulatory Authority (FINRA), the primary regulator of broker-dealers, this standard requires the advisor to have reasonable grounds to believe that the recommendation is suitable for the specific investor. 4 However, the suitability standard is much more permissive than the fiduciary standard under ERISA, and non-fiduciary advisors are permitted to make recommendations that steer plan clients to investments that generate higher fees for the advisor. Although non-fiduciary advisors are permitted to make conflicted recommendations, many advisors who work with ERISA plans voluntarily offer their services under arrangements that are intended to eliminate or minimize conflicts of interest. Plan sponsors who work with non-fiduciary advisors should request information concerning any potential conflicts of interest, and sponsors should also weigh any conflicts identified by the advisor, when evaluating the advisability of following the advisor s recommendations. When utilizing the services of non-fiduciary advisors, plan sponsors should request information concerning any potential conflicts of interest, and any disclosed conflicts should be taken into account for purposes of evaluating the advisor s recommendations. Proposed Changes in Law Impacting Non-Fiduciary Investment Services Under the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, the U.S. Securities and Exchange Commission (SEC) must conduct a study of the separate standards of conduct that apply to broker-dealers and investment advisers by January The SEC is authorized to issue regulations that will impose on broker-dealers the same fiduciary standard that applies to investment advisers under the Investment Advisers Act of 1940 (Advisers Act). 5 Separately, the U.S. Department of Labor (DOL) has announced that it will issue proposed regulations that are intended to broaden the regulatory definition of an investment advice fiduciary, in order to impose fiduciary status on advisors and consultants from whom plans expect impartial advice. 6 These changes, if adopted, may have a significant impact on the manner in which non-fiduciary advisors can provide investment services to ERISA plans. 3. nasd Rule 2310 imposes the suitability obligation whenever a broker-dealer or an associated person makes an investment recommendation. Incorporated NYSE Rule 405 imposes a similar requirement called the know-your-customer obligation. NASD Rules generally apply to all FINRA member firms, whereas the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE. FINRA has issued proposed rules, clarifying the suitability and know-your-customer obligations, as announced in FINRA Regulatory Notice (May 2009). 4. See FINRA Regulatory Notice Under the Advisers Act, investment advisers have a fiduciary duty to act solely in the best interests of the client and to make full and fair disclosures of all material facts, including conflicts-related disclosures. 6. DOL s Unified Agenda of upcoming federal regulations, released on December 7, 2009.
9 ishares 9 Financial Advisors Serving as Investment Advice Fiduciaries or 3(21) Fiduciaries Advisors Can Serve as Investment Advice Fiduciaries Many financial advisors, including registered investment advisers (RIAs), are willing to serve as plan fiduciaries. These advisors customarily acknowledge in writing that their advice will include investment advice for ERISA purposes, and they expect the plan sponsor and the plan s participants to rely on this advice as the primary basis for their investment decisions. KEY CONCEPT Any financial advisor who provides investment advice within the meaning of ERISA to plan clients is a fiduciary, even if the advisor has not been formally appointed to serve as the plan s fiduciary. These types of advisors are sometimes referred to as 3(21) fiduciaries or investment advice fiduciaries in recognition of the relevant language in Section 3(21) of ERISA. 7 Plan Sponsors Can Only Rely on Investment Advice if Reasonably Justified ERISA expressly authorizes the plan sponsor to hire other fiduciaries to provide investment advice and to assist the plan sponsor in discharging its investment duties under the plan. 8 As provided under relevant case law, plan sponsors are permitted to rely on the advice they obtain from independent experts, and fiduciary decisions that are made prudently based on expert advice are generally deemed to be consistent with the standard of care under ERISA. 9 However, the courts have ruled that the plan sponsor is prohibited from following an expert s advice blindly, but rather must (1) investigate the expert s qualifications, (2) provide the expert with complete and accurate information, and (3) make certain that reliance on the expert s advice is reasonably justified under the circumstances. 10 KEY CONCEPT Even if an advisor is serving the plan as an investment advice fiduciary, plan sponsors are still required to evaluate or monitor the advisor s recommendations. Before making any investment decision in reliance on the advice of a fiduciary advisor, the plan sponsor should investigate the advisor s qualifications, and make certain that reliance on the advice is reasonably justified. 7. ERISA Section 3(21) provides that a person is a fiduciary to the extent such person renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan, or has any authority or responsibility to do so. This statutory definition also covers other types of fiduciaries. 8. ERISA Section 402(c)(2) states that a named fiduciary, which may include a plan sponsor, may employ one or more persons to render advice with regard to any responsibility such fiduciary has under the plan. 9. See, e.g., Bussian v. R.J.R. Nabisco, Inc., 223 F.3d 286 (5th Cir. 2000). 10. Chao v. Hall Holding Co., Inc., 285 F.3d 415 (6th Cir. 2002); Howard v. Shay, 100 F.3d 1484 (9th Cir. 1996); Donovan v. Cunningham, 716 F.2d 1455 (5th Cir. 1983).
10 10 Fiduciary Status Although the plan sponsor is responsible for reviewing an investment advice fiduciary s recommendations, the sponsor need not become a subject matter expert with respect to investments. The sponsor is merely required to make an honest, objective effort to understand the advisor s analysis and to question the advisor s methods and assumptions if they do not make any sense. 11 To determine if reliance on the advisor s advice is reasonably justified, the sponsor must examine various factors, including the extensiveness and thoroughness of the advisor s investigation, whether the advice is supported by relevant materials, and whether the advisor s methods and assumptions are appropriate to the decision at hand. One extremely important factor is whether the advisor truly offers independent and impartial advice. 12 To determine if reliance is reasonably justified, the plan sponsor should review the advisor s methods and underlying data. The sponsor s review should be properly documented, demonstrating that its reliance was reasonably justified in accordance with ERISA. Conflicted Advice Is Generally Prohibited Under ERISA The impartiality of a fiduciary advisor s recommendations is especially important under the fiduciary standards of ERISA. All plan fiduciaries, including an investment advice fiduciary, are subject to a duty of loyalty, requiring fiduciaries to act solely in the interest of plan participants. Thus, the investment advice provided by the advisor is generally required to be conflict-free and impartial. If the financial advisor is a RIA, in addition to being subject to ERISA s fiduciary standards, the advisor is also subject to the Advisers Act. Investment advisers have a fiduciary duty under the Advisers Act to act solely in the best interests of the client and to make full and fair disclosure of all material facts, including conflicts-related disclosures. 13 These required disclosures are typically made through the RIA s Form ADV disclosures, and/or the client advisory agreement. The duty under the Advisers Act is comparable to that under ERISA. However, ERISA generally prohibits a fiduciary from providing conflicted advice, whereas the Advisers Act permits conflicted advice in certain circumstances with proper disclosures. Although ERISA generally prohibits an advisor from providing any conflicted investment advice to the plan sponsor or participants, the sponsor should review the conflicts-related disclosures in the RIA s Form ADV disclosures as well as the advisory agreement to confirm that the advice provided is actually conflict-free. 11. Bussian v. R.J.R. Nabisco, Inc., 223 F.3d 286 (5th Cir. 2000). 12. Gregg v. Transportation Workers of America International, 343 F.3d 833 (6th Cir. 2003). 13. Section 206 of the Advisers Act; SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963); In re Arleen W. Hughes, SEC Release No (Feb 18, 1948).
11 ishares 11 Plan sponsors should take some comfort from the fact that any investment advice provided by a fiduciary advisor that is imprudent or impermissibly conflicted will result in a breach of the advisor s duties under ERISA, exposing the advisor to fiduciary liability for any resulting investment losses. Advisory Agreement May Not Necessarily Determine Fiduciary Responsibilities The advisory agreement between an investment advice fiduciary and plan sponsor should spell out the advisor s duties under the plan, including a description of the types of advice that will or will not be provided. In particular, the agreement should clarify whether the advisor has an affirmative duty to alert the sponsor when an investment in the menu needs to be replaced or eliminated. The agreement should also clarify whether participants will receive any fiduciary advice or general investment education only. The plan sponsor and the advisor have a substantial amount of flexibility in defining the advisor s fiduciary role under the plan. The advisory agreement should include a description of the advisory services that will or will not be provided by the fiduciary advisor, including any duty to alert the sponsor when an investment is no longer appropriate and whether participants will receive fiduciary advice. However, it should be noted if the types of advisory services actually provided to the plan sponsor differ from the description of the fiduciary services in the advisory agreement, the fiduciary services that are actually provided will govern the responsibilities of the advisor. For example, if the advisory agreement provides that participants will receive non-fiduciary investment education only, but the advisor in practice provides investment advice, the advisor will be subject to potential liability for any investment losses that occur as a result of any imprudent participant advice. KEY CONCEPT A fiduciary advisor s responsibilities are determined by the actual investment advice provided, and they are not necessarily determined by the terms of the advisory agreement.
12 12 Fiduciary Status Financial Advisors Serving as Investment Managers or 3(38) Fiduciaries Certain Advisors Have Begun Offering to Serve as Plan s Investment Manager A new approach to delivering advisory services appears to be emerging in the 401(k) plan market. Rather than serving merely as the plan s investment advice fiduciary, certain financial advisors are offering to accept even greater responsibility by assuming the role of the plan s investment manager. An investment manager is a defined term under Section 3(38) of ERISA and, for this reason, investment managers can also be referred to as 3(38) fiduciaries. In the case of an investment manager serving a 401(k) plan or another plan with participant-directed investments, the investment manager must have the power to change the investment menu, adding or removing investment alternatives in accordance with its fiduciary responsibilities. KEY CONCEPT Under ERISA Section 3(38), an investment manager includes a fiduciary with the power to manage, acquire or dispose of plan assets, and who has acknowledged in writing that it is a fiduciary with respect to the plan. In addition, the fiduciary must be a RIA, bank or insurance company. In contrast to the functional definition of an investment advice fiduciary, under which an advisor can become a 3(21) fiduciary simply by providing investment advice to plan clients, the definition of an investment manager is more formal. An advisor can only become an investment manager by acknowledging its fiduciary status in writing. Thus, an advisor cannot become a 3(38) fiduciary accidentally or through the exercise of fiduciary powers alone. ERISA contemplates a formal appointment of the plan s investment manager. Appointment of Investment Manager Provides Fiduciary Protection for Sponsor The fiduciary protection gained by plan sponsors who are willing to surrender this level of investment control over the plan s menu is meaningful. If the plan sponsor appoints an investment manager, the sponsor will not be liable for the individual acts or omissions of the investment manager and will not have any direct oversight responsibility over the plan investments that are under the investment manager s control ERISA Section 405(d)(1); 29 C.F.R , FR-14.
13 ishares 13 An advisor who is serving as the plan s investment manager is fully responsible for its discretionary investment decisions under the plan. Thus, an investment manager is potentially liable for any investment losses that result from any action, or failure to act, to select and monitor the plan s investment menu properly in accordance with the standard of care under ERISA, which includes the duties of loyalty and prudence as well as all the other component duties under the prudent man standard of care. Before a financial advisor begins offering to serve plan clients as the investment manager (rather than an investment advice fiduciary), the advisor should consider the implications of serving in this capacity, including the fact that the investment manager alone will be responsible for the direct oversight of the plan menu. Sponsor Is Responsible for Appointment and Monitoring of Investment Manager The fiduciary protection provided to a plan sponsor who utilizes an investment manager is not absolute, and the sponsor remains responsible for the appointment and monitoring of the investment manager. 15 Accordingly, the sponsor must select an investment manager prudently, taking into account the manager s qualifications and all other relevant factors. The sponsor must also review the performance of the manager at reasonable intervals to ensure that its performance has been in compliance with the terms of the plan and ERISA, and continues to satisfy the needs of the plan. 16 For purposes of monitoring the manager s performance, the sponsor should also monitor the performance of the investments under the manager s authority at reasonable intervals. KEY CONCEPT The selection of any investment manager must be made prudently, and the sponsor must monitor the manager s performance on a regular basis to confirm the prudence of utilizing the investment manager on an ongoing basis. The plan sponsor is also subject to potential co-fiduciary liability for fiduciary breaches by the investment manager. However, such co-fiduciary liability typically would only arise if the plan sponsor knowingly participated in the investment manager s breach of its duties, or if the sponsor had knowledge of the manager s breach but failed to make reasonable efforts to remedy the breach ERISA Section 405(c)(2) C.F.R , FR ERISA Section 405(a).
14 14 Fiduciary Status Fiduciary Protection Is Not Available if Advisory Agreement Is Defective The fiduciary protection for a plan sponsor utilizing an investment manager will not be available if any of the required conditions of ERISA Section 3(38) are not satisfied. The court has ruled that if a plan sponsor purports to appoint an advisor to serve as the plan s investment manager, but the advisory agreement does not include the written acknowledgement required under ERISA Section 3(38), then the sponsor remains responsible (and potentially liable) for the individual investment decisions made by the appointed advisor. 18 Of course, the advisor is also potentially liable for its own fiduciary actions, even if it is not formally a 3(38) fiduciary. When appointing an advisor to serve as the plan s investment manager, the plan sponsor should confirm that the advisory agreement properly includes a written acknowledgement of the advisor s fiduciary status and that the other conditions of ERISA Section 3(38) have been met. In addition to including the required fiduciary acknowledgement, the advisory agreement should sufficiently define the scope of the manager s duties. For example, the agreement should indicate whether any investment alternatives in the menu cannot be eliminated or replaced by the manager (e.g., money market fund that is bundled with the administrative services provided to the plan). If the investment manager does not have discretionary authority over any investment in the plan menu, the responsibility for such investment would remain with the plan sponsor. Role of Plan Sponsor as Named Fiduciary (and/or Plan s Trustee) Plan Sponsor Is Typically the Named Fiduciary Contrary to common belief, plan sponsors are not automatically subject to the fiduciary requirements of ERISA. In a rather open-ended fashion, ERISA provides that the fiduciary with the authority to control and manage the operation and administration of the plan must be named or identified in the plan s written document. 19 This named fiduciary, which has primary fiduciary authority over the plan, does not necessarily need to be the employer sponsoring the plan. However, as a practical matter, most plan sponsors are inclined to retain control over the plan s operation. Accordingly, the plan document typically names the employer as the named fiduciary. 20 In the case of ERISA plans with participantdirected investments, the plan document typically grants the authority to select and manage the investment menu to the plan sponsor in its capacity as the named fiduciary. 18. See, e.g., Whitfield v. Cohen, 682 F. Supp. 188 (S.D.N.Y. 1988). 19. ERISA Section 402(a)(1). 20. For purposes of this guide, the earlier references to a plan sponsor are generally references to a plan sponsor that has assumed the role of the plan s named fiduciary.
15 ishares 15 Plan Sponsor May Also Serve as the Plan s Trustee Just as a plan s written documentation must identify its named fiduciary, it must also identify its trustee. A plan trustee is required under ERISA, and all assets of the plan must be held in trust. 21 In the case of many plans, especially smaller plans, the employer sponsoring the plan will often serve as the trustee. 22 Although many plans grant authority over the investment menu to the plan sponsor in its capacity as the named fiduciary, in theory, the plan document could instead confer such authority to the plan sponsor in its role as the plan s trustee. 23 Fiduciary Documentation Should Reflect Source of Sponsor s Investment Authority If a plan sponsor is serving as both the named fiduciary and the plan s trustee, there is little difference between a plan that gives investment authority to the named fiduciary and a plan that confers such authority to the trustee. However, for purposes of demonstrating procedural prudence, the plan sponsor should ensure that any advisory agreements, meeting minutes and any other fiduciary-related documentation properly reflect whether such investment authority resides with the plan sponsor in its capacity as named fiduciary or trustee. Plan sponsors should confirm that their plan document properly gives investment authority to the plan sponsor in its capacity as either the named fiduciary or plan trustee. 21. ERISA Section 403(a). 22. Many plans, especially larger plans, will engage a commercial bank trustee to serve as the plan s directed trustee with extremely limited authority over plan investments. 23. Under ERISA Section 403(a), the trustee must have the exclusive authority and discretion to manage and control the assets of the plan, except to the extent that (1) the plan expressly provides that the trustee is subject to the direction of the named fiduciary, or (2) the authority to manage the plan s assets are delegated to an investment manager.
16 16 Fiduciary Status Conclusion ERISA gives plan sponsors the right to seek investment assistance from advisors. However, a sponsor s ability to shift responsibility (and potential liability under ERISA) to the advisor is subject to various restrictions, depending on the advisor s role under the plan. If the advisor is providing non-fiduciary assistance, the sponsor will remain responsible for all investment decisions. When working with an investment advice fiduciary, the sponsor is potentially liable for investment decisions, but the sponsor can enjoy a degree of fiduciary protection to the extent that reliance on the advisor s recommendations is reasonably justified. If an investment manager has been appointed, the sponsor has no direct oversight responsibility for the investments under the control of the manager, but the sponsor is responsible for the appointment and monitoring of the manager. Plan sponsors and financial advisors should keep these rules in mind and stay apprised of their respective investment roles. Although advisory agreements can appropriately define the roles and responsibilities of the respective parties, the terms of the agreement are subject to revision to the extent they are inconsistent with ERISA.
FIDUCIARY LIABILITY INSURANCE, BONDING, AND SERVICE AGREEMENTS FOR SPONSORS 2007 by: Marcia S. Wagner, Esq. The Wagner Law Group A Professional Corporation 99 Summer Street, 13 th Floor Boston, MA 02110
401(k) FIDUCIARY TOOLKIT Sponsored by ishares Prepared by The Wagner Law Group Rollover Assets Navigating ERISA Restrictions on Cross-Selling to 401(k) Plan Participants IMPORTANT INFORMATION The Wagner
401(k) FIDUCIARY TOOLKIT Sponsored by ishares Prepared by The Wagner Law Group Fiduciary Liability Liability Case Studies & Strategies for 401(k) Plan Fiduciaries IMPORTANT INFORMATION The Wagner Law Group
Understanding the Structure and Risk in a Co-Fiduciary Advisor Relationship A White Paper by Chris Rowey and Darren Stewart Benefit Funding Services Group 2040 Main Street, Suite 150 Irvine, CA 92614 Introduction
Clearing Up the Confusion Over a Retirement Plan Advisor s Fiduciary Status Chuck Rolph, J.D. Director, Advanced Consulting Group Nationwide Financial Introduction This paper is directed to financial advisors
Tax Management Compensation Planning Journal Reproduced with permission from Tax Management Compensation Planning Journal, 40 CPJ 275, 12/07/2012. Copyright 2012 by The Bureau of National Affairs, Inc.
Why Advisors Will Benefit and Add Value Using a 3(38) Investment Fiduciary Defining the roles between a 3(38) Investment Fiduciary and a Plan Advisor offering non fiduciary services. Protecting both the
CLS ADVISOR IQ SERIES A PRIMER ON ERISA FIDUCIARY STANDARDS AND TYPES Table of Contents Introduction General Fiduciary Standards Under Securities Law ERISA Fiduciary Standards Types of ERISA Fiduciaries
Legal Obligations of Employers for 401(k) Plans 1. Background A. After extensive investigation of 401(k) retirement plans throughout the country, the Department of Labor (DOL) has determined the following:
April 2016 Fiduciary FAQs What you need to know about selecting a 401(k) plan provider Presented by Principal Like you, our goal is to minimize disruption as we work to understand the impact of the Department
The Basics of Fiduciary Responsibility under ERISA Prepared by Elizabeth A. LaCombe, Esq. I Who Is A Fiduciary Under the Employee Retirement Income Security Act of 1974 (ERISA)? Any person or entity who:
Reproduced with permission from Tax Management Compensation Planning Journal, 38 CPJ 299, 11/05/2010. Copyright 2010 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com Exercising
STAFF REPORT CONCERNING EXAMINATIONS OF SELECT PENSION CONSULTANTS May 16, 2005 The Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission STAFF REPORT CONCERNING EXAMINATIONS
june 2012 perspectives Fiduciary Risk Management for Plan Sponsors and Advisers The recent recession and market volatility have changed the playing field for investors and for the financial institutions
What it Means to be an ERISA Fiduciary: A Comparison to the Securities Laws By David C. Kaleda Most federally registered broker-dealers ( BDs ) and federally registered investment advisers ( RIAs ) are
3(21) and (38) Fiduciary Outsourcing Blake Willis, July Business Services Rick Keast, Redhawk Wealth Advisors 3(21) and 3(38) Fiduciary Outsourcing Presented by: Rick Keast Senior Vice President Business
ERISA Fiduciary Responsibilities A Primer for Plan Sponsors Abigail B. Pancoast Senior Counsel, Lincoln Financial Group The information contained in this article is intended to provide general information,
ERISA FIDUCIARY RESPONSIBILITY: FIDUCIARY RELIANCE ON REGISTERED INVESTMENT ADVISORS WHITE PAPER Gary J. Caine, FSA REGIONAL DIRECTOR INTRODUCTION Plan sponsors have become more concerned about the investments
Via Electronic Submission to www.regulations.gov July 21, 2015 Office of Regulations and Interpretations Employee Benefits Security Administration Attn: Conflict of Interest Rule, Room N-5655 U.S. Department
APRIL 2015 COMMENTARY Once More Unto the Breach The New Fiduciary Definition On April 14, 2015, the Department of Labor (the Department ) re-proposed regulations (the Proposed Regulations ) that define
FIDUCIARY INSIGHTS & UPDATES Did You Know? Fiduciaries have important responsibilities and are subject to high standards of conduct because they act on behalf of participants in a retirement plan and their
DOL s Fiduciary Rule & Related Exemptions Presentation to ACLI Forum 500 Leadership Retreat May 2, 2016 Thomas Roberts The Landscape Fiduciary Status Investment advice for a fee or discretionary authority
Summary of DOL Regulatory Package Redefining Fiduciary Advice and Proposing or Amending Prohibited Transaction Class Exemptions On April 20, the Department of Labor ( DOL ) proposed a package of regulations
Robert W. Baird & Co. Incorporated Important Information about Brokerage and Investment Advisory Services Understanding Brokerage and Investment Advisory Relationships Baird is registered with the Securities
RETIREMENT PLAN FIDUCIARY GUIDE CONGRATULATIONS You re sponsoring a valuable retirement plan for your employees, and BB&T is delighted to assist you in that effort. Employees will appreciate this important
GAME CHANGER PART II: THE FOUR FIDUCIARY STANDARDS 2015 GAME CHANGER, PART II THE FOUR FIDUCIARY STANDARDS OF CARE The Department of Labor s Conflict of Interest Proposal creates a new fiduciary standard
Selecting Plan Investments, Services and Providers: Satisfying ERISA s Fiduciary Requirements Using Fiduciary Benchmarks, Inc. Reports A WHITE PAPER: By C. Frederick Reish & Nicholas J. White Reish Luftman
ERISA AND THE RESPONSIBILITIES OF A PLAN SPONSOR: THE NEED FOR AN EXPERIENCED INTERMEDIARY The following addresses the potential benefits of retaining a financial intermediary for retirement plans, specifically
NEW DOL FIDUCIARY GUIDANCE TOP 10 PRACTICAL ACTION ITEMS FOR EMPLOYERS AND 401(K) INVESTMENT COMMITTEES ADAM B. CANTOR, ESQ. CHIESA SHAHINIAN & GIANTOMASI PC ONE BOLAND DRIVE, WEST ORANGE, NJ 07052 ACANTOR@CSGLAW.COM
FIDUCIARY ADVISERS KNOW THE FACTS There is a significant amount of confusion and misinformation in the marketplace regarding investment advisers ability to relieve plan sponsors of their fiduciary responsibilities
Service Provider Fee Disclosure Rules Now Final: Next Steps for Retirement Plan Fiduciaries March 2012 Table of Contents Service Provider Fee Disclosure Final Rules 2 Background 2 Significant Clarifications
RETIREMENT INSIGHTS Understanding your fiduciary role A plan sponsor fiduciary guide ABOUT Perhaps no one topic in the employee benefits arena has drawn more attention and scrutiny over the last several
SAMPLE INSURANCE BROKER SERVICE AGREEMENT (For Use By Insurance Brokers in Preparing Service Agreements for Clients Whose 401(k) Plans Are Funded by John Hancock Group Annuity Contracts or, With Respect
Understanding Your Fiduciary Role Legal Aspects of Fiduciary Duties Under ERISA for Tax-Exempt Plan Sponsors Mark A. Daniele, Esq. McCarter & English, LLP January 26, 2012 I. ERISA ERISA imposes various
15 MISCONCEPTIONS ABOUT THE THREE PRINCIPAL FIDUCIARY ROLES IN A RETIREMENT PLAN Pete Swisher, CFP, CPC Senior Vice President National Sales Director Confusion over the legal and practical nature of the
Employee Benefits & Investment Management Update Department of Labor Revises Investment Advice Definition May 2015 On April 14, 2015, the Department of Labor (Department) released a long-awaited proposed
What You Don t Know Can Hurt You Your 401(k) Plan Investment Advisor May Be Forced to Drop Your Retirement Plan. What You Need to Know About The Dodd-Frank Reform and Consumer Protection Act And the Meaning
Review of the Department of Labor s (DOL) Final Definition of Fiduciary Key Points IBDs, RIAs and Advisors Need to Know Contents Three Key Points... 1 The Basic Framework of the Final Rule... 3 DOL s Final
Comptroller s Handbook AM-CI Asset Management (AM) Conflicts of Interest January 2015 Office of the Comptroller of the Currency Washington, DC 20219 Contents Introduction...1 Overview... 1 Types of Conflicts
Jennifer E. Eller and Andrée M. St. Martin, Groom Law Group, Chartered This Note describes the types of expenses that may and may not be paid from the assets of an employee benefit plan. It also explains
INSIGHTS SERIES Perspectives and viewpoints on investing in today s market Understanding fiduciary responsibilities A guide for retirement plan sponsors Offering a retirement savings opportunity in the
FIDUCIARY STANDARDS FOR INVESTMENT ADVISORS Attorneys for Family Held Enterprises Annual Meeting in Washington DC, April 2016 Michael Warszawski Senior Managing Director FIDUCIARY INVESTMENT ADVISORS Investment
Pros and Cons of Internal vs. External ESOP Trustees Post Enron GreatBanc Trust Company 45 Rockefeller Plaza, Suite 2056 New York, NY 10111-2000 Karen Bonn, Vice President (212) 332-3251 email@example.com
Meeting Your Fiduciary Responsibilities To view this and other EBSA publications, visit the agency s Web site at: www.dol.gov/ebsa. To order publications, contact us electronically at: www.askebsa.dol.gov.
Fiduciary Guide Helping to protect your plan. MetLife Resources Table of Contents Introduction..........................................................................1 MetLife s Commitment.................................................................
2013 Expert Series What Trustees in Bankruptcy Need to Know About Pension Plans Marcia Wagner, Esq., Managing Director, Wagner Law Group On September 18, 2013, PenChecks Trust hosted What Trustees in Bankruptcy
Fee transparency and best practices for plan sponsors Prepared by The Wagner Law Group What s inside 2 Executive summary 3 Introduction 4 Underlying reasons for complexity of 401(k) plan fees 6 Potential
Mitigating fiduciary liability for defined contribution plan investment decisions Vanguard commentary June 2013 Executive summary. In recent years, several high-profile class-action lawsuits have alleged
Executive Summary Definition of the Term Fiduciary U.S. Department of Labor Conflict of Interest Rule 1 April 15, 2016 I. Introduction. Background. The U.S. Department of Labor (the Department or DOL )
NAIFA Fact Sheet: DOL Expands Fiduciary Definition The Department of Labor (DOL) has released its long anticipated Proposed Regulation to Address Conflicts of Interest, and is accepting public comments
FIDUCIARY CONSIDERATIONS IN OFFERING A BROKERAGE WINDOW by Fred Reish and Bruce Ashton Compliments of TD Ameritrade Content provided by: C. Frederick Reish, Partner at Drinker Biddle & Reath, LLP and Bruce
Eaton Vance White Paper June 2012 Fee Disclosures Under ERISA Section 408(b)(2) A Business and Compliance Strategy for Advisors Investment Professional Use Only. Not To Be Used With the Public. Not FDIC
FIDUCIARY RESPONSIBILITY OF RETIREMENT BOARD MEMBERS AND STAFF Derek Moitoso Compliance Counsel PERAC September 2015 2 840 CMR 1.01 A board member shall discharge all of his/her duties solely in the interest
INVESTMENT ADVISORY MANAGEMENT AGREEMENT This Investment Advisory Agreement ( Agreement ) is entered into this day of, 20, by and between Rockbridge Asset Management, LLC ( Rockbridge ), a Registered Investment
FIDUCIARY BEST PRACTICES: Taking a prudent approach to plan management A White Paper Prepared by Transamerica Retirement Solutions Contents Taking a prudent approach to plan management 2 Appointment of
DOL Proposes Rule Redefining Fiduciary Status in the Investment Advice Context By Tess J. Ferrera and Christine A. Schleppegrell June 3, 2015 Background The Department of Labor (DOL) released its long-awaited
February 2, 2011 Office of Regulations and Interpretations Employee Benefits Security Administration Attn: Definition of Fiduciary Proposed Rule Room N-5655 U.S. Department of Labor 200 Constitution Avenue,
FINRA-Broker Dealer Investment Banking Due Diligence On April 20, 2010, the Financial Industry Regulatory Authority ( FINRA ) issued Regulatory Notice 10-22 (the Notice ) reminding broker-dealers of their
DISCRETIONARY INVESTMENT ADVISORY AGREEMENT This Discretionary Investment Advisory Agreement (this Agreement ) is between (the "Client") and LEONARD L. GOLDBERG d/b/a GOLDBERG CAPITAL MANAGEMENT, a sole
PTE 84-24 and Pension Plan Transactions Involving Insurance Agents or Brokers, Pension Consultants or Mutual Fund Principal Underwriters If an insurance agent or broker, pension consultant or mutual fund
1 Client Update Final DOL Fiduciary Rules Simplify Some Mechanics, but Retain Core Principles... and Flaws NEW YORK Lawrence K. Cagney firstname.lastname@example.org Jonathan F. Lewis email@example.com Lee
FIDUCIARY RESPONSIBILITY OF RETIREMENT BOARD MEMBERS AND STAFF Barbara Phillips, General Counsel Derek Moitoso, Associate General Counsel PERAC 2010 Spring MACRS Conference Fiduciary Responsibility What
New Frontiers For Advisors Who Lead the Way First Quarter 2016 DOL s Fiduciary Rule Increases Advisor Responsibility Industry interest has increased around the Department of Labor s (DOL) rule expanding
Plan Sponsor Basics Webinar 6 of 6 Fiduciary Responsibility and 401(k) Plans Presenters: September 19, 2012 www.morganlewis.com Gregory L. Needles Julie K. Stapel Stuart P. Kasiske Today s Topics Statutory
Sweeping New DOL Proposal on Fiduciary Investment Advice Edward E. Bintz, Edward A. Frueh, and Douglas S. Pelley April 2015 The long-anticipated proposed fiduciary regulation was released by the Department
Choosing a 401k plan Advisor? Why is choosing a 401k service provider and/or a 401k plan Advisor a major decision? Because unlike most day to day work-related decisions these are fiduciary decisions. A
INVESTMENT ADVISOR SERIES The Rising Need for ERISA Fiduciary Liability Protection For TPAs and Other Administrative Service Providers to Retirement Plans Marcia Wagner - The Wagner Law Group On behalf
T. Rowe Price 401(k) Fees and Fiduciary Responsibility What Plan Sponsors Need to Know Retirement Insights Executive Summary In recent years, market events have made many 401(k) participants more sensitive
Defined Contribution Plans Fiduciary Focus Series Using ERISA Accounts to Help Manage Fee-Related Fiduciary Responsibilities Contents 1 Employer Fee Responsibilities 2 Revenue Sharing 3 DOL s View of ERISA
SAMPLE REGISTERED INVESTMENT ADVISER COMPENSATION DISCLOSURE (For Use by Registered Investment Advisers in Providing Disclosures of Compensation To Retirement Plan Clients Whose Plans are Funded by Group
EACUBO 2011 Pittsburgh Workshop ERISA Fiduciary Responsibilities for 403(b) Plans: Keys to Implementation June 17, 2011 Presented by: Ed Wodarczyk, Esq. Rhoades & Wodarczyk, LLC 330 Grant Street; Suite
This Investment Advisory Agreement ( Agreement ) is entered into by and between ( Client ), SPC Financial (SPC) a U.S. Securities & Exchange Commission ( SEC ) Independent Registered Investment Adviser,
I N V E S T M E N T A D V I S O R Y A G R E E M E N T AGREEMENT, made this day of, 20 between the undersigned party,, whose mailing address is (hereinafter referred to as the CLIENT ), and TRADEWINDS CAPITAL
401 (k) plan administration how plan sponsors can reduce legal risk May 9, 2005 Evan Miller firstname.lastname@example.org Brian L. Shiker email@example.com Hogan & Hartson LLP 555 Thirteenth Street, NW Washington,
CURRENT ISSUES RELEVANT TO OUR CLIENTS MARCH 18, 2013 SEC Requests Additional Information on Conduct Standards for Broker-Dealers and Investment Advisers In 2010 the Dodd-Frank Wall Street Reform and Consumer
Plan Administrator Guide Your qualified retirement plan combines current employer tax savings with retirement security for participants. Congress specifically provided for this favorable treatment in the
New Regulations Under ERISA Refine and Develop Fiduciary Duties Regarding the Investment of Plan Assets Maine Employee Benefits Council December 4, 2008 Eric D. Altholz Verrill Dana, LLP Background There
Senior Consultant the voice of the investment management consultant Brokers as Fiduciaries by reish luftman reicher & cohen I am often asked whether there are any lawsuits against brokers as fiduciaries
Mitigating Fiduciary Liability for Investment Evaluation & Selection In A Profit Sharing/401(k) Plan Fiduciary Insight, LLC 5555 DTC Parkway, Suite D-2004 Greenwood Village, CO 80111 Telephone: 303.xxx.xxxx
The Expanding Legal Requirements for Rollover IRAs By Fred Reish Partner, Drinker Biddle & Reath LLP PlanAdvisorTools.com Provided compliments of RidgeWorth Investments The Expanding Legal Requirements
1 Department of Labor Update - 2016 Presented By Dale R. Vlasek January 21, 2016 2 I. Department of Labor (DOL) Proposed Regulation Defining Fiduciary Background ERISA defines fiduciary among other things
SECURITIES AND EXCHANGE COMMISSION (Release No. 34-64386; File No. SR-FINRA-2011-018) May 3, 2011 Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed