About six years ago, in the context of servicing a 401-k plan, I was reviewing a document entitled “Fiduciary Warranty Checklist” that was generated by a Life Insurance company who was the plan provider.  This document was well designed with a bold & raised gold stamp on it. It emitted a sense of security and stability.  I certainly liked that word “Warranty” and it was giving me the impression that the Insurance company was either a fiduciary to the plan or somehow relieving the plan sponsor (employer) of liability.

But I really didn’t understand it all… and then clients started asking questions.

After digging deeper, the fine print revealed that the Insurance company is not serving as a fiduciary of any kind and that all of that duty (and associated liability) belonged to the employer!  Six years later, I still find the word fiduciary a bit confusing as well as ERISA law in general.  But I do know a little more about it:

1) The word “Fiduciary” is so freely and overused in connection with 401-k marketing it has become essentially generic.

2) Stock brokers and Insurance Agents are NOT  Fiduciaries to 401-k plans (As of this writing.  That may change soon)

3) Registered Investment Advisors (RIA’S)  may serve as a fiduciary and it can occur in different ways:

  • RIA Co -Fiduciary:  Works alongside the employer and shares liability
  • RIA 3(38) :  Assumes the entire fiduciary process, hence most of the liability.  By hiring a 3(38) you have the opportunity to “Contractually delegate” most of the fiduciary duty.
  • RIA 3(21) limited scope:  This advisor does not have discretionary authority – and has the same liability as a co-fiduciary
  • RIA 3(21) full scope:  This advisor does have full discretion – offering comparable liability protection to the 3(38) AND has the ability to hire and fire your other service providers.

There is more to this topic and please know this is not legal advice and I am not an attorney.  For 401-k legal advice please consult a qualified ERISA attorney, perhaps Ary Rosenbaum  (who I learned most of this from).

In the end, these laws are always changing, so while it’s good to have an overview, an employer offering 401-k is probably best served by hiring competent specialists they like and trust (Lawyers, Accountants, Administrators, Financial planners et. cetera) allowing them to do what they know best.

As for that insurance company’s “Warranty Checklist”?  Well it was – and still is -  just a reminder to the employer about how they can protect themselves under the ERISA 404(C) requirement for offering a “broad range of investment alternatives”.

Any questions or thoughts about Recognizing a 401-k Fiduciary?  Please comment below or click here!