Fiduciary liability and hiring a fiduciary to run your plan
The best way to help
yourself and your employees achieve better investment results is to
offer individualized investment advice. When hiring an adviser for your
plan, there are several things to keep in mind:
1) A 3(38)
investment manager is the highest level of fiduciary oversight for 401k
plans. However, this has become a marketing gimmick for many companies,
so you have to be aware what a 3(38) manager's role is. A good manager
will do the following:
a) Create an investment policy statement for the plan which outlines the investment selection criteria and investment strategy.
b) Set up model portfolios for plan participants.
c) At the very least, help place plan participants into appropriate portfolios.
d) Provide individualized advice to plan participants.
e) Do all of the above for a flat fee (not asset-based).
Just picking investments is the easy way out - it won't help plan
participants make good investment decisions. For pooled plans, a 3(38)
manager would do a) above and take discretionary responsibility for
managing the portfolio.
2)
As a plan sponsor, you have fiduciary liability for investment
selection and monitoring for your plan. To limit this liability, you can
hire a 3(38) investment manager. Advisers
have to acknowledge their fiduciary status as a 3(38) investment
manager in writing - unless they are a 3(38) fiduciary, and sign a
contract with you where it says that they are taking fiduciary
responsibility as a 3(38) investment manager, you have done nothing to
limit your fiduciary liability - you will still remain the fiduciary in
charge of investment selection and performance.
Individualized
advice is arguably the best way to limit your liability with respect to
losses by plan participants - if every participant has a portfolio that
is selected by a fiduciary adviser, then your only liability is the
selection of the adviser.
3) Sometimes a 3(38) manager will
tag-team with a 3(21) adviser (co-fiduciary) who can provide some plan
services such as educational seminars, and possibly individualized
advice. For a small plan, there is no value in hiring an adviser unless
you get the full scope of services including investment management and
individualized advice. There are some online tools and even services
that can offer individualized advice cheaply, but there is nothing
better than getting personalized advice for yourself and your
employees. The next best thing is a pooled plan design, which in my
opinion will remove the whole headache of worrying about plan
participants incurring investment losses and suing you for damages. -
See more at:
http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=714&v=1#sthash.nQlo1OQG.dpuf
Fiduciary liability and hiring a fiduciary to run your plan
The best way to help
yourself and your employees achieve better investment results is to
offer individualized investment advice. When hiring an adviser for your
plan, there are several things to keep in mind:
1) A 3(38)
investment manager is the highest level of fiduciary oversight for 401k
plans. However, this has become a marketing gimmick for many companies,
so you have to be aware what a 3(38) manager's role is. A good manager
will do the following:
a) Create an investment policy statement for the plan which outlines the investment selection criteria and investment strategy.
b) Set up model portfolios for plan participants.
c) At the very least, help place plan participants into appropriate portfolios.
d) Provide individualized advice to plan participants.
e) Do all of the above for a flat fee (not asset-based).
Just picking investments is the easy way out - it won't help plan
participants make good investment decisions. For pooled plans, a 3(38)
manager would do a) above and take discretionary responsibility for
managing the portfolio.
2)
As a plan sponsor, you have fiduciary liability for investment
selection and monitoring for your plan. To limit this liability, you can
hire a 3(38) investment manager. Advisers
have to acknowledge their fiduciary status as a 3(38) investment
manager in writing - unless they are a 3(38) fiduciary, and sign a
contract with you where it says that they are taking fiduciary
responsibility as a 3(38) investment manager, you have done nothing to
limit your fiduciary liability - you will still remain the fiduciary in
charge of investment selection and performance.
Individualized
advice is arguably the best way to limit your liability with respect to
losses by plan participants - if every participant has a portfolio that
is selected by a fiduciary adviser, then your only liability is the
selection of the adviser.
3) Sometimes a 3(38) manager will
tag-team with a 3(21) adviser (co-fiduciary) who can provide some plan
services such as educational seminars, and possibly individualized
advice. For a small plan, there is no value in hiring an adviser unless
you get the full scope of services including investment management and
individualized advice. There are some online tools and even services
that can offer individualized advice cheaply, but there is nothing
better than getting personalized advice for yourself and your
employees. The next best thing is a pooled plan design, which in my
opinion will remove the whole headache of worrying about plan
participants incurring investment losses and suing you for damages. -
See more at:
http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=714&v=1#sthash.nQlo1OQG.dpuf
Fiduciary liability and hiring a fiduciary to run your plan
The best way to help
yourself and your employees achieve better investment results is to
offer individualized investment advice. When hiring an adviser for your
plan, there are several things to keep in mind:
1) A 3(38)
investment manager is the highest level of fiduciary oversight for 401k
plans. However, this has become a marketing gimmick for many companies,
so you have to be aware what a 3(38) manager's role is. A good manager
will do the following:
a) Create an investment policy statement for the plan which outlines the investment selection criteria and investment strategy.
b) Set up model portfolios for plan participants.
c) At the very least, help place plan participants into appropriate portfolios.
d) Provide individualized advice to plan participants.
e) Do all of the above for a flat fee (not asset-based).
Just picking investments is the easy way out - it won't help plan
participants make good investment decisions. For pooled plans, a 3(38)
manager would do a) above and take discretionary responsibility for
managing the portfolio.
2)
As a plan sponsor, you have fiduciary liability for investment
selection and monitoring for your plan. To limit this liability, you can
hire a 3(38) investment manager. Advisers
have to acknowledge their fiduciary status as a 3(38) investment
manager in writing - unless they are a 3(38) fiduciary, and sign a
contract with you where it says that they are taking fiduciary
responsibility as a 3(38) investment manager, you have done nothing to
limit your fiduciary liability - you will still remain the fiduciary in
charge of investment selection and performance.
Individualized
advice is arguably the best way to limit your liability with respect to
losses by plan participants - if every participant has a portfolio that
is selected by a fiduciary adviser, then your only liability is the
selection of the adviser.
3) Sometimes a 3(38) manager will
tag-team with a 3(21) adviser (co-fiduciary) who can provide some plan
services such as educational seminars, and possibly individualized
advice. For a small plan, there is no value in hiring an adviser unless
you get the full scope of services including investment management and
individualized advice. There are some online tools and even services
that can offer individualized advice cheaply, but there is nothing
better than getting personalized advice for yourself and your
employees. The next best thing is a pooled plan design, which in my
opinion will remove the whole headache of worrying about plan
participants incurring investment losses and suing you for damages. -
See more at:
http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=714&v=1#sthash.nQlo1OQG.dpuf
There are many reasons to hire a fiduciary to help you manage your
retirement plan. While fiduciary liability is an important
consideration, the primary reason to hire a fiduciary who will act in
your best interest is to help you minimize your plan expenses and assist
you in managing your investments. When you start a new plan there are
many important decisions that have to be made, including the type of plan that works best for your practice
and Third Part Administrator selection and evaluation. For an existing
plan an adviser can review your plan design and cost, and recommend ways
to improve your plan, such as upgrading to a custom-designed plan that
can allow contributions of $53k, or moving to an open architecture
record-keeper that allows access to low cost Vanguard index funds.
The most important aspect of your plan is investment selection and
performance, so hiring an adviser who is proficient in investment
management is extremely important. The best way to help yourself and
your employees achieve better investment results is to offer
individualized investment advice, which can also be provided by a
fiduciary adviser. When hiring an adviser for your plan, there are
several things to keep in mind:
1) An ERISA 3(38) investment manager
is the highest level of fiduciary oversight for 401k plans. However,
this has become a marketing gimmick for many companies, so you have to
be aware what a 3(38) investment manager’s role is. A good 3(38)
fiduciary will do the following:
- Create an investment policy statement for the plan which outlines the investment selection criteria and investment strategy.
- Set up and manage model portfolios for plan participants.
- Provide individualized advice to plan participants (or recommend
and/or provide oversight for low cost third party services that can
provide individualized advice).
- Do all of the above for a flat fee (while limiting or eliminating all asset-based fees from your plan).
Some advisers limit their services to selecting plan investment
lineup only, and this by itself won’t help plan participants make good
investment decisions.
2) As a plan sponsor, you have fiduciary liability for investment
selection and monitoring for your plan. To limit this liability, you can
hire a 3(38) investment manager. Advisers have to acknowledge their
fiduciary status as a 3(38) investment manager in writing – unless they
are a 3(38) fiduciary, and sign a contract with you where it says that
they are taking fiduciary responsibility as a 3(38) investment manager,
you have done nothing to limit your fiduciary liability – you will still
remain the fiduciary in charge of investment selection and performance.
Individualized advice is arguably the best way to limit your
liability with respect to losses by plan participants – if every
participant has a portfolio that is selected by a fiduciary adviser,
then your only liability is the selection of the adviser.
3) Sometimes a 3(38) manager will team up with a 3(21) adviser
(co-fiduciary) who can provide some plan services such as educational
seminars, and individualized participant advice. For a small plan, there
is no value in hiring an adviser unless you get the full scope of
services including investment management and individualized advice.
There are several companies that can offer individualized advice
cheaply, which can be a cost-effective way of delivering advice to plan
participants. However, advice provided by third parties to plan
participants has to be overseen by the 3(38) investment manager because
the quality of such advice will depend on the quality of the plan
investments and model portfolios.