Are Your Clients Fiduciaries?
Yes, if they are an employer who sponsors a 401(k) plan. As a plan fiduciary, they are subject to the rules of ERISA, the federal law governing qualified retirement plans. ERISA requires them to take fiduciary responsibility for their company's 401(k) plan, which demands a level of investment experience and time commitment most employers don't have.
What's at stake? The future security of their valued employees, of course. But so is their own future; ERISA provides severe consequences for failing to properly manage the plan's investments. Some of the potential consequences include:
|•||Personal financial liability for losses caused by improper management|
|•||Fines and penalties|
Fortunately, employers are permitted to hire qualified independent advisors to assist with these critical responsibilities. These experts may act in an ERISA 3(21) Investment Advisor or an ERISA 3(38) Investment Manager capacity. When your clients transfer their responsibility it helps shoulder the burden of fiduciary investment management and lets:
|•||Your clients focus on their business|
|•||The primary advisor focus on maximizing the plan's effectiveness|
|•||The investment fiduciary focus on the investments of the plan.|
Sometimes participant best interests are served when someone else takes care of the investments. It may be a good idea to discuss with your clients if hiring a 3(38) or 3(21) investment fiduciary is right for their plan.
David M. Montgomery, AIF®, CRPS®