Managing Your Fiduciary Obligations

Benefits of Outsourcing and Questions Every Plan Sponsor Should Consider
Joe Frustaglio

By Joe Frustaglio, vice president, private sector retirement plans, Nationwide Financial

Every qualified retirement plan is subject to the fiduciary responsibilities detailed by the Employee Retirement Income Security Act (ERISA). Ultimately, it is up to the employer, in its role as plan sponsor, to determine what level of fiduciary and legal liability it wants to assume in the operation of a retirement plan. The good news is that outside fiduciary service providers are available to help. This article takes a look at the various types of plan fiduciaries and the benefits of having a third party handle this important responsibility.

The Named Fiduciary

ERISA Section 402(a) requires that every employee benefit plan be established and maintained based on a written plan document, which names one or more fiduciaries.

Think of the named fiduciary as the coach of the plan. It is the person or entity responsible for the appointment and monitoring of the trustee and the plan administrator, and who has ultimate responsibility for the operation of the plan. In most plans, the employer or one or more employees will act as the named fiduciary, however, the role of the named fiduciary can be outsourced to a professional.

When considering whether to engage an outside party to fill this role, ask yourself:


  • Am I comfortable with the responsibility of appointing and managing my plan’s trustees and the plan administrator?


The Plan Administrator Fiduciary—ERISA Section 3(16)

The 3(16) plan administrator oversees the daily operations of the plan. This includes making benefit determinations for participants and beneficiaries, administering plan provisions for loan approval and processing, making appropriate disclosures to participants and ensuring regulatory filings are completed on time.

There can be benefits to outsourcing the role of the 3(16) plan administrator. Ask yourself the following questions before agreeing to serve in that capacity:


  • Am I comfortable managing my plan’s operation, and am I prepared to devote adequate time to this task?
  • Am I comfortable with the daily administration activities involved in maintaining a smooth-running plan?


The Investment Advice Fiduciary—ERISA Section 3(21)(A)(ii)

A trustee who retains authority and responsibility for investing the plan’s assets needs to decide whether to seek help from a professional investment advice fiduciary, known as a 3(21)(A)(ii) investment advice fiduciary.

This is a co-fiduciary relationship—both the trustee and the investment advice fiduciary retain full fiduciary responsibility for the advice that is given and for the actions taken based on the advice.

Questions the trustee should ask when considering hiring a 3(21)(A)(ii) investment advice fiduciary:


  • Would the plan benefit from professional investment advice?
  • Would investment advice help me in my job as manager of the plan’s assets?


Investment Manager Fiduciary—ERISA Section 3(38)

A trustee, the individual or team that has exclusive authority to control plan assets, can appoint a registered investment adviser (RIA), bank, trust company or insurance company as a 3(38) investment manager fiduciary, which gives them full discretion for investment decisions. The trustee retains responsibility for monitoring the activities of the investment manager, but is not responsible for the individual investment decisions of the investment manager fiduciary.

Questions a trustee might ask when considering using a 3(38) investment manager fiduciary:


  • Do I want to alleviate the responsibility of making investment decisions about the plan’s assets?
  • How comfortable am I, in my capacity as trustee, in making investment decisions, realizing that I am liable for my decisions?



Delegating fiduciary responsibilities can reduce liability, and may even make you more productive by freeing up more of your time to focus on other areas. But, before you decide to outsource any fiduciary responsibility, please check with your ERISA attorney when establishing your plan to determine what is best from a legal liability standpoint in your individual situation.



Nationwide Group Retirement Series includes unregistered group fixed and variable annuities that are issued by Nationwide Life Insurance Company. Trust programs and trust services are offered by Nationwide Trust Company, FSB, a division of Nationwide Bank. Nationwide Investment Services Corporation, member FINRA. In MI only: Nationwide Investment Svcs. Corporation.

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