Fiduciary Responsibility

DECREASE YOUR FIDUCIARY RISK

Reduce your legal liability and regulatory risk by partnering with a 401(k) service provider that can share in your fiduciary responsibility. There are two types of 401(k) advisers who will act as a fiduciary on your 401(k) plan:

  • Pawn chess piece icon3(38) Investment Managers
    
A 3(38) Investment Manager takes on the full responsibility of managing the investment lineup and has discretion to make necessary changes. In doing so, the 3(38) Investment Manager takes on the primary fiduciary responsibility for investment decisions.
  • Umbrella icon3(21) Investment Advisors
    
A 3(21) Investment Advisor makes investment recommendations but leaves the ultimate decision and liability to you. A 3(21) Investment Adviser shares some of your legal liability by acting as a co-fiduciary.

Fisher Investments serves as an Investment Manager under Section 3(38) of ERISA for their clients. This means, as a Fisher Investments client, you can safely delegate your fiduciary responsibility for choosing a menu of investments for participants. Your remaining fiduciary responsibility is to monitor our service and the reasonableness of our fees. We also offer extensive fiduciary education resources for you and any other employees who act as fiduciaries, in order to help you manage your 401(k) plan with confidence.

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COMPARE FIDUCIARY PARTNER OPTIONS

Fisher Investments is a 3(38) Investment Manager and this quick chart is intended to contrast the primary responsibilities of a 3(21) Investment Adviser vs. a 3(38) Investment Manager and other financial advisers. This chart represents how an adviser or investment manager will provide fiduciary services to the plan, not to individual participants. This is not a comprehensive listing. Learn more about the differences between a 3(21) investment adviser and a 3(38) investment manager with this FAQ.

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401(k) SERVICE PROVIDERS: FIDUCIARY vs. BROKER

While you have a fiduciary responsibility, it’s possible to find service providers to help you manage your 401(k) and share in that responsibility with you. Some of these service providers can act as fiduciaries themselves, while others are “brokers.” A fiduciary is legally required to meet a “fiduciary standard”—that means acting in the best interest of the client. A broker, on the other hand, only has to meet a “suitability standard.” That means the broker is required to recommend investments they believe are suitable for you as their client, but they aren’t legally required to work in your best interests the way a fiduciary would be.

HIRE A 3(38) INVESTMENT MANAGER AND BENEFIT FROM FIDUCIARY SUPPORT

Fiduciary responsibility is a serious matter, but you don’t have to go it alone. As ERISA laws permit, you can authorize a designated 3(38) Investment Manager to assume your primary responsibility and liability for selecting, monitoring, and updating the investment options available to you and your employees. Fisher Investments is here to support you as a 3(38) Investment Manager, sharing in your legal duty and helping you offer a valuable 401(k) plan to your employees. If your adviser is a 3(38) Investment Manager, you’ll see that in writing in your contract as required under ERISA.

Contact us today to tell us about your company’s unique needs and start a conversation about how we can ease your fiduciary burden.

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WHAT DOES FIDUCIARY RESPONSIBILITY MEAN?

When an individual is a fiduciary, they take on certain legal responsibilities. In 401(k) terms, a fiduciary is someone who is responsible for making decisions about, or manages, an employer-sponsored retirement plan and its assets. Being a fiduciary means that you have to make decisions that are in the best interests of your employees, and you may be personally liable if the decisions you make are not clearly in their best interests.

WHO IS A FIDUCIARY?

If you make management decisions or investment choices for your company’s 401(k) plan, there’s a good chance you are a fiduciary. Your status as a fiduciary is based on what you do and what decisions you make for the plan, including: administering or managing a plan, controlling the assets (money) in the plan, or making decisions regarding the investments that are available to you and your employees.

Every 401(k) plan has at least one fiduciary named in the plan document, but you may be a fiduciary and not even know it.

You are a 401(k) fiduciary if:

  • You are a plan sponsor or are named as a fiduciary in the plan document.
  • You make any management decisions about the 401(k) plan.
  • You have any discretionary authority over the 401(k) or its administration.
  • Your title implies a fiduciary status (i.e. chief financial officer, director of human resources).
  • You are a plan trustee or sit on the Board of Directors.
  • You select investments or provide professional investment advice for the plan.

401(k) plans need to have at least one fiduciary—either a person or a financial institution—but for some plans, the fiduciaries may include a committee or a board of directors. For many small businesses, the owner, CEO, CFO, or HR manager act as the plan fiduciary. In addition, other plan fiduciaries might include:

  • The trustee (the person or entity responsible for holding the plan’s money).
  • Those who select members for your company’s committee (if your company has one).
  • An investment adviser like a 3(38) Investment Manager (or another entity who will share or take on some of your fiduciary responsibility).

You can delegate some of your fiduciary responsibilities to other entities to help you manage the plan, such as a financial institution.

WHAT IS A 401(k) FIDUCIARY?

A 401k fiduciary is an individual or entity who manages an employer-sponsored retirement plan and its assets. The Employee Retirement Income Security Act (ERISA) of 1974 is the federal law that primarily governs your actions as a fiduciary.

Specifically, under ERISA, a 401(k) fiduciary is required to:

  • Act prudently in all plan duties.
  • Act in the best interest of plan participants.
  • Understand and follow the plan document.
  • Diversify investments and ensure fees are reasonable.
  • Avoid prohibited transactions.

HOW DO YOU KNOW WHEN YOU'RE MAKING A DECISION AS A FIDUCIARY?

If you’re making a decision that impacts the way owners or employees are able to use their current retirement benefit, you’re making a fiduciary decision. However, it’s important to distinguish a fiduciary decision from a business decision—the decision to start or end a company 401(k) would be considered a business decision. If you’re not sure whether a decision you’re making is related to your fiduciary responsibilities, consider consulting a retirement adviser.

Plan Sponsor 401(k) FIDUCIARY DUTIES

  • Overseeing 401(k) Service Providers
    
The first major duty of a plan sponsor fiduciary is to hire service providers, like a 401(k) adviser, a recordkeeper, and a third party administrator. Even if you do hire a fiduciary partner to help you manage your 401(k) plan, it is still your responsibility to oversee the work of your service providers. This includes conducting a periodic review of service providers to see that service and performance standards are being met.
  • Managing Investment Options

    As a fiduciary, part of your responsibility is to choose a variety of investment options for your employees to invest their savings in. You may not be responsible for directing investments, but it’s important you find out who is. Some employers establish a formal investment committee to monitor the investment options in the company plan, and others choose to partner with a 3(38) Investment Manager or 3(21) Investment Advisor. You may also consider developing an investment policy statement (IPS) to document your plan’s investment requirements and processes for investment monitoring and selection.
  • Monitoring Fees

    High fees can have a serious negative impact on your employees’ ability to save money. For that reason, it’s important to familiarize yourself with the requirements of Section 408(b)(2) of ERISA. In short, that means monitoring the fees associated with service providers and investment options to see that they are reasonable.
  • Helping Employees
    A company’s 401(k) plan is only as good as the benefit employees receive from it, so a part of your fiduciary duty is to help employees make good use of their plan. Work with your 401(k) service providers to provide employees with all required disclosures and ongoing communications related to the investment options in your plan. You may also seek out additional support from your 401(k) providers, including employee education, hands-on financial education, and automatic enrollment features complete with a qualified default investment alternative (QDIA).
  • Following the Plan Document

    Ultimately, a fiduciary is responsible for making sure the plan document that governs the functions of the company 401(k) plan is followed. Observe all rules associated with things like eligibility, deferral rates, vesting schedules, and loans. Additionally, you may consider creating a plan compliance calendar for help meeting testing and filing deadlines, such as the annual filing of the Form 5500.
  • Managing Fiduciary Liability

    As you review your plan’s fees and operations and make new decisions for the plan, including shopping for a new 401(k) service provider, document all meetings and decisions so your thought process can be clearly followed and justified. Clear records will help you manage your fiduciary liability. You may also consider purchasing liability insurance to protect yourself and other plan fiduciaries from the costs of litigation. Finally, identify a point of contact, such as an internal lawyer or hired attorney, to communicate with the Department of Labor in the event of an audit.
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