I advise many clients throughout the U.S. regarding Employee Retirement Income Security Act (ERISA) engagements. Many of our clients are being engaged as a discretionary investment manager for retirement plans or as consultants to self-directed 401(k) plans. Two common themes remain: confusion and, at times, failure to follow applicable laws and rules.
The Department of Labor is conducting reviews of plans and advisors (to a much lesser extent) to ascertain compliance with ERISA, and the SEC will routinely address ERISA engagements during regulatory exams, including such issues as bonding, proxy voting, fee-leveling (self-directed plans), revenue sharing, conflict disclosure, custody and whether the plan’s assets can be counted as assets under management on their ADV Part 1.
I am always looking to enhance our clients’ knowledge regarding ERISA engagements, including engagement limitations (especially in a self-directed plan where the advisor generally serves as the consultant to the plan). All too often, the agreements that I see are a disaster. They reflect little to no understanding of ERISA issues.
ERISA is an extremely complex federal law that governs 401(k) plans in the private sector. It remains an unsettled issue for advisors who provide consulting and investment services to 401(k) plans whether they may charge an additional fee for providing model allocation services to 401(k) plan participants. For registered investment advisors (RIAs) to better understand this issue, they must be aware of certain terms and definitions under ERISA.
Section 3(14) of ERISA defines a “party in interest” as “any fiduciary (including, but not limited to, any administrator, officer, trustee or custodian), counsel or employee” of a plan and “a person providing services to such plan.”
Section 3(21) of ERISA defines a “fiduciary” as a person who exercises discretionary authority or control over management of a plan or its assets, or who provides advice for compensation.