“No matter how much they may want to, they can never completely offload their liability as it applies to their fiduciary responsibilities,” says Richard Friedman, managing director of corporate retirement services for asset management firm IRON Financial. “For the investments made within the plan, 3(38) is the only mitigation of liability that plan sponsors and brokers can rely on.”
Friedman is referring to section 3(38) of the Employee Retirement Income Security Act of 1974 (ERISA), which provides that a plan sponsor can delegate the responsibility and liability of the selection, monitoring and replacing investment options and functions to an ERISA described investment manager who then takes on the fiduciary responsibilities—and therefore liabilities.
Friedman, in an interview with AdvisorOne at the ASPPA 401(k) Summit on Monday in Las Vegas, says there is a “jumble” of information about what constitutes a fiduciary. Many firms might call themselves experts in section 3(38) of the ERISA, but not all of them are, and it becomes a case of figuring out who really has that liability expertise.
“If you engage with a poor liability mitigation firm in this area, you actually could do more damage and expose yourself to more liability than if you had never engaged one at all,” Friedman warns. “We’ve taken what works for our clients in-house, and offered it as an outside service for other firms. We do educational seminars on the fiduciary topic that helps answer the following: What is a fiduciary; who is a fiduciary; and, what does being a fiduciary really mean?”
He notes it is extremely difficult for advisors and plan sponsors to know in this regulatory environment if they are one. They are either a fiduciary by title or by function, he says. They might say they are not a fiduciary, but if they walk like a fiduciary and talk like a fiduciary, then they are a fiduciary.