DCIIA Delivers Clarity Amidst Fiduciary Confusion

Fiduciary GuideDCIIA is helping to clear-the-air around what can accurately be described as an era of fiduciary confusion!  And today, there is an abundance of confusion around the types of fiduciary support available to retirement plan sponsors.  We regularly field questions centering around fiduciary responsibility from attendees of The Plan Sponsor University (TPSU).  Recently, the Defined Contribution Institutional Investment Association (DCIIA) published a guide outlining the different governance and fiduciary structures plan sponsors can select to fit their plan’s needs.  (The guide can succinctly be described as a compilation of Prudence, Awareness and good old Commonsense.)

Specifically, the guide provides a breakdown of the different types of service providers and explains in what situations these providers would be fiduciaries.  The names for the fiduciary types come from sections of the Employee Retirement Income Security Act: 3(16), 3(21) and 3(38) fiduciaries, according to this plan adviser article about the DCIIA guide.

According to the DCIIA guide, “Traditionally, the plan sponsor or a committee or employee of the plan sponsor is designated as the plan’s named fiduciary.  Increasingly, third-party providers may also serve as a plan’s named fiduciary.” (See the guide, linked above for a more granular description of fiduciary responsibility.)

Here’s an overview of the three fiduciary governance models, courtesy of plan adviser and the DCIIA:

3(16) Fiduciary

A 3(16) fiduciary is a plan administrator acting in a fiduciary capacity.  Not all administrative tasks bring fiduciary status.

Examples of administrative tasks that are fiduciary tasks include: discretionary authority on matters of ERISA compliance; moving balances or implementing trades; discretionary authority on loans and hardship withdrawals; and writing checks.

Other tasks would not automatically make an administrator a fiduciary, such as: enrolling participants; financial education support; implementing trades by direction and not discretion; and ordinary cleric duties.

A key distinction among 3(16) actors is whether they have discretion or have been directed to perform a task.  For example, if the sponsor outsources final judgement on authorizing a hardship withdrawal, then that administrator is acting as a fiduciary. However, if an administrator is merely assisting in eligibility determination based on guidelines established by the sponsor, then it is not acting in a fiduciary capacity.

3(21) Fiduciary

3(21) fiduciaries are investment advisers or consultants.  The guide says that hiring an adviser can be a good choice, even if the plan sponsor has in-house experts, since it can add another set of eyes and additional analysis.

This class of fiduciary gives advice to a plan but leaves final decision making to the sponsor.  3(21) fiduciaries can provide data and/or can recommend changes to policy and governance structure, investment selection, fee structure, administration and asset custody.

The guide warns plan sponsors to watch out for conflicts of interest, especially in the form of advisers who might recommend their own products.

3(38) Fiduciary

3(38) fiduciaries are investment managers or outsourced chief investment officers.  Working with a manager can take different forms, depending on the needs of the plan.

A manager can recommend certain parameters for investment options, such as the number that are actively or passively managed and the number of investments in each assets class.  The sponsor would then fill those parameters, or “buckets.” A manager can also be more involved in the process, such as by selecting asset allocation and glidepaths for a custom target-date fund.

This category of fiduciary is most popular outside of defined contribution plans, such as in defined benefit plans and endowments, but, according to the guide, its popularity is growing in DC plans.  In the DC space, 3(38) fiduciaries are “primarily used for TDF and single-manager fund selection.”

It is important to understand the different types of fiduciary service providers and their roles so plan sponsors can make an informed decision.  An ongoing question of all plan sponsors should remain:  Do we choose to outsource some or most of our fiduciary responsibility?  Keep in mind, plan sponsors maintain ongoing fiduciary responsibility to:

  • prudently select a provider – at a reasonable value;
  • monitor every provider’s performance;
  • continuously meet expectations; and
  • act in participants’ best interests year after year.


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