Case of the Week: Qualified Plan Fiduciaries

Can you help me understand the various categories of plan fiduciaries?

• When a business establishes a qualified retirement plan that covers one or more common-law employees, there must be at least one fiduciary named to oversee and control the plan’s operation. 

• Fiduciaries are charged with prudently operating a qualified retirement plan solely in the interest of its participants and beneficiaries for the exclusive purpose of providing benefits to such individuals, while paying reasonable expenses for plan administration. 

• Plan fiduciaries can be held personally liable for losses to the plans that result from their failure to fulfill their responsibilities.

• The various types of fiduciaries potentially associated with a qualified retirement plan are defined in sections of the federal law that protects employee benefits (i.e., ERISA). 

• Fiduciaries are named through identification in the plan document or as a result of their function with respect to the plan.

• An ERISA §3(16) fiduciary is the plan administrator, a person designated under the plan to administer the plan. In most cases the plan administrator is the employer sponsoring the plan or a committee designated by the plan.

• An ERISA §3(21) “full scope” fiduciary is any person or entity having discretion over the administration and management of the plan, controlling the assets of the plan (such as the employer, plan administrator or trustee) or providing investment advice to the plan in exchange for a fee or other compensation. (ERISA Sec. 3(21)(A))

• An ERISA §3(21) “limited scope” fiduciary is any 3(21) fiduciary that has a written agreement in place specifically outlining his or her responsibilities with respect to the plan.

• An ERISA §3(38) fiduciary an individual specifically named in the plan document or identified as a  fiduciary pursuant to a procedure identified in the plan appointed to manage the assets of the plan (i.e., an investment manager). Historically, ERISA § 3(38) was created to define the roles of multiple fund managers within a defined benefit plan. The applicability of an ERISA §3(38) fiduciary for 401(k) plans with participant-directed investments has yet to be fully clarified by the Department of Labor.

• An ERISA §408(g) fiduciary is a fiduciary of the plan who provides investment advice to participants/beneficiaries through an eligible investment advice arrangement (i.e., an investment advice fiduciary or “fiduciary advisor”). The Pension Protection Act of 2006 created the  fiduciary adviser role as a way to help plan sponsors provide investment advice to participants, while reducing the plan sponsors’  fiduciary liability with respect to the advice given.