Every 401(k) plan must have at least one named fiduciary, who has the responsibility of administering the plan and selecting investment options. For most plans, the plan sponsor serves that role, however the named fiduciary role can be outsourced.
A Named Fiduciary is:
A 402(a) fiduciary by name, not function. A 3(21) full scope fiduciary by function.
•Is named in the plan document as a fiduciary or is appointed as a fiduciary.
•Exercises discretionary authority or control over plan assets and/or the management of the plan.
•Provides investment advice with respect to plan assets.
Named Fiduciary Personally Liable for All Phases of Plan Management
A named fiduciary is personally liable for and all phases of plan management and administration, except to the extent that the responsibility for a specific phase has been allocated under a permissible procedure to another named fiduciary or has been delegated under a permissible procedure to another fiduciary.
The Plan Sponsor may be and often is the “Named Fiduciary. In that role the Sponsor can delegate and appoint other fiduciaries which will provide some degree of insulation against liability. However, the Sponsor in that role always retains responsibility and liability for making a prudent selection or delegation.
The Named Fiduciary is always considered a fiduciary within the meaning of ERISA section 3(21). That’s why it is often referred to as a “full scope” 3(21) fiduciary. Other terms that may be used include “full service trustee” or “discretionary trustee” could serve just as well in some instances. The term “trustee” as used in this context is a misnomer, similar to when it is used to identify a custodian. However, when the terms “full service” or “full spectrum” are used as part of the description, they become an understandable proxy for Named Fiduciary. Whatever the descriptive term one chooses to ascribe to the primary fiduciary decision maker, that role will always “cover the full spectrum of administrative and investment duties of fiduciaries under ERISA.” In short, the full scope 3(21) fiduciary is THE Named Fiduciary; put another way, the Named Fiduciary becomes THE full scope 3(21) fiduciary.
An investment advisor is not, and never will be, the full scope 3(21) fiduciary unless the advisor’s name actually appears in plan documents as the Named Fiduciary with authority to hire, monitor, fire and replace service providers and other fiduciaries. Instead the traditional Investment Advisor is a “Limited Scope” 3(21) Fiduciary: one who renders non-discretionary investment advice to the Plan, but does not have the discretion to make the decisions alone.
The Sponsor that hires a 3(21) will have little to no protection against liability. While the 3(21) may make recommendations and render investment advice, because of its non-discretionary role, the Plan Sponsor will always be responsible for making sure the advice is appropriate. In short, the Sponsor in the Named Fiduciary role will remain liable for the investment decision, if implemented.
A 3(38) Fiduciary is an investment manager appointed or named by the Sponsor or Named Fiduciary to manage the day to day portfolio decisions on a discretionary basis. A 3(28 provides a “safe harbor” to insulate Plan Sponsors from the liability from buying, selling and managing funds for the Plan.
The 3(21)/3(38) structure enables professional fiduciaries to take appropriate action when necessary and lower a plan’s cost structure below that of the prevailing market. It also gives plan sponsors a professional third-party to be held accountable for the prudent management of a plan. Appointing a limited scope 3(21) investment advisor may, however, adequately serve the interests of plan sponsor and plan participants in some cases.
In all instances, the plan sponsor retains the authority to remove and replace any fiduciary, even if has delegated all day-to-day responsibilities to others.
1.What responsibility does a Named Fiduciary have that a 3(38) fiduciary does not have?:
Hiring and firing service providers.
Responsibility (and liability ) for plan administration errors or defects.
In short, it is not very far from the responsibility a Fiduciary currently has when they “sit on top of the Plan”. However, it is markedly more responsibility that a 3(38) fiduciary which is limited to day to day portfolio management.
2. What can a Named Fiduciary do that —————- currently does not do?
Hire and fire service providers (ie: a 3(16) Administrator or a TPA).
Hire and firm 3(21) limited scope fiduciaries for investment advice.
Hire and fire a 3((38) fiduciary (as long as you do not hire yourself—you already have the responsibility for investment decisions as the 401(a)/full scope 3(21), you can’t appoint yourself and get paid again. No protection there.)