Considerations to Guide Your Search for a Fiduciary Retirement Plan Adviser

Bruce Jensen, with Hub International, discusses considerations for plan sponsors when searching for a new retirement plan adviser.

If your organization is undertaking the due diligence process of finding a new retirement plan adviser, you’re not alone.

According to one investment firm’s annual survey of plan sponsors, 38% are looking for an adviser, the greatest number since the report started. Among the concerns driving their searches? Managing fiduciary responsibilities and addressing the risk of litigation and liability were high on the list. Further, the adviser’s willingness to take on a formal fiduciary role was critical to 60% of respondents.

Whatever your reason for seeking a new retirement plan adviser, you need to ensure that your plan is being managed responsibly and according to its documented rules. Even if the plan is performing well, you still must be on guard against risks. Fundamental blocking and tackling requirements need to be met. Plus, there are special considerations to avoid under IRS and Department of Labor (DOL) rules.

Your search should explore three critical factors:

The implications of the fiduciary’s role. Each retirement plan has a named plan administrator, usually the company—and its owners, directors and board members—or a committee. As plan administrator, the sponsoring company establishes what is defined in the plan. The plan administrator has discretionary control regarding the plan’s management as well as authority over the management or disposition of plan assets.

For plans operating under the Employee Retirement Income Security Act (ERISA)—and, in most states, for non-ERISA plans, too—the plan administrator has four duties in the plan’s operation. One is to operate the plan for the exclusive benefit of participants and beneficiaries while defraying reasonable expenses. Second, the administrator and other fiduciaries have a duty of prudence in managing the plan with the participant’s best interests in mind.

Prudent fiduciaries will consider whether the assistance of professionals to help them carry out these duties is required. In most cases, they will retain retirement plan advisers to serve alongside the plan administrator in carrying out these duties.

How fiduciary advisory services align with your needs. In deciding to obtain the help of outside service providers, the plan administrator should determine the type and scope of services required. Services vary from firm to firm but tend to fall into three categories:

  • The adviser or consultant may serve in a 3(21) capacity, giving investment recommendations to the plan sponsor to sign off on. In this case, the plan sponsor has the final say with regard to the investment options and assumes the fiduciary risks.
  • If the plan adviser or consultant operates in a 3(38) capacity, he makes decisions pertaining to the investment options and assumes responsibility for those decisions. Importantly, the plan sponsor in this instance has the responsibility to make sure the 3(38) adviser is qualified and is fulfilling his/her duties.
  • The third type of plan fiduciary relates to plan sponsor functions, such as making sure contributions are submitted in a timely fashion, that the plan document is being followed, that the 5500 is filed, etc. These fiduciary responsibilities are sometimes referred to as 3(16) duties. Because these responsibilities are administrative in nature, they are typically outsourced, to a record keeper or third-party administrator (TPA).

The new adviser’s role(s), processes, track record, fees and more. Besides assessing what types of services meet its plan’s needs, the sponsor should determine what fiduciary roles the chosen candidate will actually assume. Generally, retirement plan advisers need specific experience and credentials to serve as an investment fiduciary, so, for most advisers, being a fiduciary may be outside the scope of their services. Plan sponsors should inspect prospective advisers’ processes, experience and expertise before making any decisions. Fee structures should also be reviewed and understood clearly.

A person may become a fiduciary to a plan simply by performing fiduciary functions. In these cases, it is incumbent on the plan administrator to determine whether the functional fiduciary is indeed a fiduciary and should make appropriate adjustments to the scope of authority granted to such a person.

About the author:

Bruce Jensen, AIF CRPS, is senior vice president of investment services at Spectra Retirement, a division of Hub International. He has more than 25 years of experience helping businesses solve for qualified retirement plan matters that include plan governance and design, fee negotiations, benchmarking, ERISA compliance, investment analysis, health savings account (HSA) integration and employee education. Securities and advisory services are offered through LPL Financial, a registered investment adviser (RIA), and member of Financial Industry Regulatory Authority (FINRA)/Securities Investor Protection Corporation (SIPC).

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does the adviser assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.

Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services (ISS) Inc. or its affiliates.