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Peeling Back the Fiduciary Layers and Unscrambling the Fiduciary Confusion

(Page 3 of 4)

The ERISA 3(16) Plan Administrator -- Both Fiduciary and Non-Fiduciary in Nature

There are various fiduciary and non-fiduciary roles related to plan administration and operation.


ERISA specifically identifies and defines the term "Administrator" not to be confused with a TPA, but really refers to a "Plan Administrator" under ERISA Section 3(16)(A). This Section defines the Administrator as the person or entity "so designated" under the plan. If the plan does not specify an "Administrator," the plan sponsor commonly serves automatically in that role. But really, that is all that this section of ERISA provides. It does not create in the role of Administrator any fiduciary responsibility or liability.

To determine precisely what this role involves, the actions and responsibilities of the Administrator need to be evaluated. Certain functions of the Administrator will be fiduciary in nature, and others will not be of a fiduciary nature, but rather, will be non-fiduciary ministerial duties. The responsibility and liabilities related to this role are very different depending upon the exact nature of the administrative tasks involved.

Starting with the non-fiduciary ministerial duties, in general, include:

  • Applying eligibility rules to participation or benefits and calculating benefits and crediting service;
  • Preparing employee communications;
  • Preparing drafts of government filings;
  • Maintaining records;
  • Collecting and/or applying contributions, accounting and reconciling data;
  • Processing approved claims and loans for distribution;
  • Orientation of participants and providing plan information;
  • Preparing benefit statements; and,
  • Making plan administration recommendations.

By contrast to these ministerial duties, fiduciary functions involve the exercise of discretionary management and control over administration and/or assets of a plan.

Examples of administrative tasks involving the exercise of discretion and control include:

  • The authorization of distributions or loans, or any plan transactions;
  • Investment services for a fee provided by an administrative company;
  • Investment monitoring services for a fee (see discussion below);
  • Any selection or monitoring of investments;
  • The selection of certain plan service providers; and
  • Actions to enforce or interpret the terms of the plan, or decisions on claims for benefits or other plan-related decisions.

When retaining an independent ERISA 3(16) Administrator, the plan official should determine the precise scope and responsibility being taken on by that Administrator. Some duties will be fiduciary in nature and others are not! If the plan terms or an agreement do not delegate certain responsibilities, then they are retained by plan officials.

The 3(38) Investment Manager Fiduciary

An ERISA Section 3(38) Investment Manager is a specifically defined role. The Investment Manager is authorized and acknowledges in writing, allowing for someone other than the Named Fiduciary or Trustee, certain specific responsibility regarding the power with discretion to manage, acquire, or dispose of any asset of a plan. This can be any person who maintains the requisite license to provide such services, including a Registered Investment Advisory ("RIA") business entity.

Most commonly, this role is with respect to investment management services, but this role can be more expansive and when it is, can prove very useful to the plan and its sponsor.

This role comes with responsibility, and can provide a critical and helpful function for plan officials and sponsors, because it allows the retention of certain control functions while allocating certain primary responsibility for investment, or other plan management to a third party fiduciary who is not only responsible, but liable.

The 3(21) Non-Discretionary Fiduciary, Investment Advisors

As stated above, the rendering of any investment advice for a fee, (whether the fee is direct or indirect), creates a specific investment advisor fiduciary role unlike the other fiduciary roles we have discussed requiring discretion. Importantly, this role does not involve the exercise of discretion and is not defined to include the exercise of discretion. Rather it is any investment advice given to a plan and/or participants and beneficiaries that creates this specific fiduciary role. Notably, the mere investment advice fiduciary has a very limited fiduciary role and responsibility to the plan. Without discretion, the investment advice fiduciary is a very specific and very limited responsibility.

It should be noted that a broker-dealer or its registered representative may be receiving commissions for providing recommendations incidental to the purchase or sale of securities, not for providing advice. Given this fact and circumstance, a broker will not be an investment advice fiduciary merely because it receives a commission to move assets based upon an instruction. But plan sponsors beware. The act of providing recommendations can easily be turned into advice if:

  • Such person makes investment recommendations on a regular basis pursuant to a mutual agreement or understanding with the plan, written or otherwise;
  • That such services will serve as a primary basis for the plan's investment decisions; and
  • That such person will render individualized advice based on the particular needs of the plan. The DOL has taken the position that "investment advice" may also include advice provided to a participant in a defined contribution plan with participant-directed investments.

If the broker is paid any fee, on an asset basis or otherwise, while giving investment advice, this may then give rise to fiduciary status. Again, plan officials should be very careful to evaluate the roles and responsibilities and who is being paid what money for what services. Ultimately, the lead fiduciaries for a plan will be responsible!

This is a perfect example of why understanding the role and responsibility of all service providers is paramount for plan officials.

(Continued on next page...)

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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.

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