Picture2The recent Department of Labor’s re-proposed Fiduciary Rule has generated many opinions on how it will affect fiduciary service models. One constant, however, cuts through all of the debate: the Plan Sponsor still has the fiduciary responsibility to select and monitor those service providers.

But as you can see, there is a hierarchy of service models available in the 401(k) marketplace. Each of which offers Plan Sponsors a different level of support with regard to investment selection and monitoring. Here is a brief description of each in the order of lowest to highest fiduciary protection:

1. Due Diligence Support.

Providers offering this service have an evaluation process for the investment options they offer under their retirement programs usually known as due diligence support. The provider offers a wide array of funds, and plan sponsors use the tool to help construct an appropriate line-up for their plan. However, the plan sponsor is still responsible for selecting and monitoring the plan’s investment options.

2. Fiduciary Certificate or Warranty.

Providers offering this service provide a Certificate or Warranty generally available to plan sponsors if they select at least one fund in designated asset classes. There is due diligence support for evaluating their funds combined with last-resort fiduciary liability protection if numerous conditions are met.

3. Directed Trustee

Under this arrangement, an institutional Trustee will usually provide a custodial arrangement, and to take instruction from the Plan Sponsor that are consistent with the plan document and ERISA. Directed Trustees will usually disavow fiduciary status.

Section 3(21) Fiduciary 

Some 401(k) programs use the services of an independent Registered Investment Adviser (RIA) who agrees to become an investment advice fiduciary under section 3(21)(A)(ii) of ERISA. Under this service, the RIA recommends and monitors funds for the plan’s fund menu. However, employers are still responsible for selecting and monitoring the specific funds used on the menu.

5. Section 3(38) Fiduciary

Under this arrangement, the Plan Sponsor hires a Fiduciary to manage the investment process of its retirement plan. It must be an RIA, bank, or insurance company who is solely responsible for the selection, monitoring, and replacement of plan investment options.

6. Discretionary Trustee

There a few providers who will act as a Discretionary Trustee under Section 403(a) of ERISA. A  Discretionary Trustee goes beyond the investment services offered by a Section 3(38) Trustee by providing services such as a) custody of the assets, b) responsibility for Section 404(c) compliance, c) and c) 408(b)(2) fee disclosures.


Which fiduciary service is best? There is no “best” one. Each Plan Sponsor must decide based on its own situation. individual facts and circumstances. But here are some basics.

First, there must be an agreement between the Plan Sponsor and the service provider.

Second, the service provider must acknowledge its fiduciary status in writing.

Third, the Plan sponsor still has the duty to prudently select and monitor service providers.

As always, make sure to read the fine print, and consider having an ERISA attorney review the service agreement.