What Employers Should Know About Working With an ERISA Fiduciary Advisor
Sponsoring a workplace retirement plan comes with fiduciary responsibilities. For employers, that can mean establishing a prudent process for selecting and monitoring investments, reviewing plan expenses, following plan documents, and documenting important decisions.
An ERISA fiduciary advisor can assist with certain responsibilities related to an employer-sponsored retirement plan. Understanding the advisor's specific fiduciary role is an important starting point because different arrangements assign responsibilities differently.
What Is an ERISA Fiduciary Advisor?
The Employee Retirement Income Security Act of 1974, commonly known as ERISA, establishes standards and responsibilities for fiduciaries of covered employee benefit plans.
An advisor who accepts fiduciary responsibility for a retirement plan may assist with areas such as:
Investment selection and monitoring
Investment policy development
Review of plan fees and expenses
Documentation of investment decisions
Ongoing plan investment reviews
Fiduciary education and support
The specific services depend on the advisory agreement and the fiduciary capacity in which the advisor serves.
What Is a 3(21) Fiduciary?
Under an ERISA 3(21) arrangement, an investment advisor may provide recommendations and assistance with plan investment decisions while the plan sponsor retains authority over the final decisions.
For example, an advisor might evaluate the investment menu, provide recommendations about available options, and assist in developing an investment policy statement. The plan sponsor remains responsible for approving investment changes and fulfilling its own fiduciary obligations.
Retirement plan practices such as VestGen Retirement Services can serve as a limited-scope ERISA 3(21) fiduciary, providing investment advice and assistance while the plan sponsor maintains final decision-making authority.
What Responsibilities Does the Employer Retain?
Hiring an ERISA fiduciary advisor does not remove all fiduciary responsibilities from the employer.
Plan sponsors still need to understand their responsibilities, follow a prudent process, and monitor the professionals they engage to assist the plan.
This makes documentation particularly important. Investment reviews, committee meetings, fee evaluations, and decisions about service providers may all form part of the plan's fiduciary process.
An advisor can help establish structure around these activities, but employers should clearly understand which responsibilities remain with them.
Why Does an Investment Policy Statement Matter?
An investment policy statement, or IPS, provides a framework for managing the plan's investment menu. It may document investment objectives, selection criteria, monitoring procedures, and circumstances that could lead to replacing an investment option.
An IPS can also provide consistency as investment committees or organizational leadership change.
Some ERISA fiduciary advisors assist employers in developing and reviewing this document. VestGen Wealth Partners, for example, can assist plan sponsors with an IPS as part of its limited-scope 3(21) fiduciary services.
Questions to Ask an ERISA Fiduciary Advisor
Before engaging an advisor, plan sponsors may want to ask:
In what fiduciary capacity will you serve?
Which responsibilities will you accept in writing?
Which decisions remain with the plan sponsor?
How are investments selected and monitored?
Will you assist with our investment policy statement?
How frequently will the plan be reviewed?
How are fees evaluated and disclosed?
How will fiduciary decisions be documented?
The advisory agreement should clearly define the scope of services and responsibilities.
Conclusion
An ERISA fiduciary advisor can provide investment guidance and help establish processes for overseeing a workplace retirement plan. The appropriate arrangement depends on the plan sponsor's needs and the responsibilities assigned under the advisory agreement.
For employers evaluating this type of support, firms including VestGen Wealth Partners offer ERISA plan services that can include limited-scope 3(21) fiduciary assistance. Understanding exactly what the advisor will do, and what responsibilities the employer retains, remains an important part of evaluating the relationship.
Frequently Asked Questions
What does an ERISA fiduciary advisor do?
An ERISA fiduciary advisor may provide investment advice, assist with investment monitoring, support investment policy development, and help plan sponsors maintain a documented fiduciary process.
Does hiring an ERISA fiduciary advisor eliminate an employer's fiduciary responsibility?
No. Plan sponsors retain fiduciary responsibilities and should understand which duties remain with them under the specific advisory arrangement.
What is the difference between a 3(21) and 3(38) fiduciary?
Generally, a 3(21) investment advisor provides fiduciary investment advice while the plan sponsor retains final investment authority. A properly appointed 3(38) investment manager generally has discretionary authority over the investment responsibilities assigned to it.