Types of Fiduciary Appointments
There are many different types of fiduciaries. The duty that each fiduciary has varies based on the role they are serving. Below are some common fiduciary appointments:
§ Named Fiduciary – Responsible for day-to-day operation and is named in the Plan document
§ 3(16) – Manages the operations of the retirement plan processes and documentation
§ Trustee – Holds discretion for processing plan assets and operations
§ 3(21) – Makes recommendations and gives advice for a variety of services to a retirement plan (vendor selection, benchmarking, fee negotiations). A common approach is when an investment advisory firm provides advice regarding investment options in a plan, while continually monitoring these options. The plan sponsor has final authority on decision making.
§ 3(38) – Maintains full discretion over the investment options in a plan. The investment advisory firm has final authority over investment related decisions.
Plan fiduciaries (Investment Stewards) cannot fully relieve themselves of fiduciary responsibility by hiring an outsourced fiduciary. They always have the duty to monitor and benchmark the activities of outsourced fiduciaries to ensure the selection is consistently in the best interest of the plan participants. Plan fiduciaries can hire an outsourced fiduciary to be responsible for certain elements of a plan, so plan fiduciaries can gain greater efficiency, expertise, and protection for the retirement plan.
If one were to read all of the laws defining fiduciary obligations, one would discover eight common requirements.
Know standards, laws, and trust provisions.
Diversify assets to specific risk/return profile.
Prepare investment policy statement.
Prudently select fiduciary and non-fiduciary service providers and document due diligence.
Control and account for investment expenses and other costs.
Avoid or manage conflicts of interest in favor of the investors and beneficiaries.
Monitor service providers and prudently manage service provider relationships.
Monitor and ensure conformity to fiduciary obligations owed to investors and beneficiaries.
Complying with all applicable standards related to fiduciary role requires assessing fiduciary awareness and preparedness and to take necessary action to ensure the assets under the fiduciary’s charge are best positioned to succeed. That can include training and education to understand obligations, investigating applicable laws and regulations, and delegating certain responsibilities to expert service providers. Fiduciary laws and regulations are intentionally principles-based, meaning they are less prescriptive than rules-based laws and regulations. The fiduciary acts in the nature of a “trustee” and therefore must always act in the best interests of the “trustors” who depend on the fiduciary; that includes obligations to stay current with developments and respond appropriately to changing economic, market and social conditions, technology, and the collective body of knowledge that sets the parameters of good stewardship practices.
Chesme Capital Management has over 18 years of experience serving as an ERISA 3(38) discretionary investment manager and 3(21) fiduciary adviser to plan sponsors and participants.