Peeling Back the Fiduciary Layers and Unscrambling the Fiduciary Confusion
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Maybe the most misunderstood, misapplied and even ignored fiduciary role is the Co-Fiduciary. This relationship can be established with respect to any fiduciary role under a plan.
The Co-Fiduciary is often talked about by investment professionals and other plan advisors, in a haphazard and meaningless way. The Co-Fiduciary role can exist or be created intentionally by an agreement that calls for an allocation of responsibilities and roles, or even unintentionally.
Often overlooked is the fact that Co-Fiduciary responsibility can arise unintentionally if there is knowing participation in a breach of duty, any failure to comply with obligations or enabling a breach of duty, or a failure to remedy a breach within the fiduciaries area of responsibility. The unintentional mechanisms for ascribing and creating Co-Fiduciary liability are not undertaken by design, but exist nevertheless by statute under ERISA.
By design, the plan and Named Fiduciary can, by the plan document or by agreement, assign Co-Fiduciary responsibility to certain persons or entities with respect to certain aspects of a plan. Assets can be jointly managed. Various fiduciary roles can be allocated and jointly assumed by one lead fiduciary service provider as the "go-to" provider, or to a series of more than one fiduciary in a Co-Fiduciary relationship. Some service providers take on the entire fiduciary responsibility. Others share the responsibility through the Co-Fiduciary role. This can be advantageous in certain instances as well.
It is critically important for the Named Fiduciary and other responsible parties to understand these relationships and not allow Co-Fiduciary roles to fall unintended or unattended.
The Trustee -- Limited Role or Expansive Role?
Most plans have a Trustee, and the role of the Trustee is defined by ERISA as well. Under ERISA Section 403, unless certain exceptions apply, plan assets must be held in Trust. Thus, the Named Fiduciary is to appoint a Trustee, which is the person or entity that has the "exclusive authority and discretion to manage and control the assets of the plan." This is all subject to the appointment authority of the Named Fiduciary.
Of course, as we noted above, these roles are not all or nothing propositions. The statute specifically provides for exceptions to the Trustee role and permits the allocation of responsibilities of a Trustee to others. Most relevant to this discussion is the exception to the Trust requirement for insurance contracts or policies issued by an insurance company, or assets of an insurance company that are held by that company for the plan. Such assets are not required to be held in Trust. Other limits on the role of the Trustee or delegation of some Trustee duties to others, can be provided for as well.
The plan can provide that the Trustee is subject to the direction of a Named Fiduciary who is not a trustee. In that case, the Trustee must follow the direction of another in the performance of their duties.
Another exception is the specific authority delegated to one or more investment managers to manage, acquire or dispose of assets (see discussion below), and if so, the manager retains primary responsibility for the assets, and the Trustee is "off-the-hook" with respect to the management of the assets.
Another mechanism for limiting the role of the Trustee often found in 401k plan arrangements is the role of the "Custodial Trustee." This is an instance where the obligations and responsibilities of the Trustee are contractually limited to custody and protection of assets. In this type of arrangement, the Trustee is not responsible at all for any plan administration, investment management or plan operations.
The key here is that the roles and responsibilities are allocated to others and that each role and responsibility is articulated in writing, and understood by all concerned. Plan sponsors should consider if their service providers create an appropriate structure that aligns well with the interests, experience and capabilities of the sponsor and staff. The plan sponsor and the Named Fiduciary must fully understand the relationships and roles of everyone involved in the plan as well as where their respective responsibility and liability begins and ends.
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Find more on this topic here: Fiduciary Responsibility and Liability Issues.
The information provided here is intended to help you understand the general issue and does not constitute tax, investment or legal advice. Use of any information from this article is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness.