Employers that provide a retirement plan have a fiduciary responsibility to keep the plan in compliance with the Employee Retirement Income Security Act (ERISA). Due to the ever-changing maze of regulatory rules, plan sponsors can often find it difficult to meet their fiduciary responsibilities placing them at risk for costly fines, penalties and legal ramifications. In light of this, prudent business owners understand the need to appoint professional fiduciary companies to manage the investments and day-to-day plan administration.
What are Professional Fiduciaries?
A hired professional fiduciary is legally required, per the Department of Labor (DOL), to put the best interest of plan participants ahead of their own when they offer investment advice or act as a plan administrator on a client’s behalf. Leaving no room for a service provider or advisor to potentially hide any conflict of interest. Fees for services and commissions for investment advice that are paid from Plan assets must be clearly disclosed to clients and plan participants.
In addition to being obligated to put plan participant interests ahead of their own, fiduciaries must also adhere to the duties of loyalty and care. These duties outline that the fiduciary must act prudently, in good faith and without regard to their own personal interests.
Studies reveal that a vast majority of Americans (over 80%) do not understand (or are not sure) what a fiduciary is and what the difference is between fiduciary companies and financial advisors.
Standards for Fiduciary Companies
Professional Fiduciaries are held to a much higher level of accountability than the “suitability standard” previously required of financial advisors, including brokers or insurance agents, who work with retirement plans.
Suitability refers to the fact that as long as an investment recommendation meets a client’s need and objective, it is deemed appropriate.
The primary responsibility of a professional fiduciary is to operate the Plan solely in the interest of participants and beneficiaries. Fiduciaries must act prudently in order to minimize the risks associated with plan investments and administration. In addition, they must adhere to the terms of the Plan document to the extent that the plan terms are consistent with ERISA.
In a recent study revealing gaps in knowledge, almost half (46 percent) of American adults incorrectly state that it is “true” that all financial advisors are fiduciaries who “are legally required to put the best interests of their clients first, when they give advice on retirement investments.
Fiduciary companies, on the other hand, adhering to the duties of loyalty and care cannot make a self-interested transaction with regard to retirement plan management or assets entrusted to them to manage.
What is the Difference Between 3(16), 3(21) and 3(38)?
Under ERISA, administrators acting as 3(16) fiduciaries reduce liabilities for the plan sponsors. While an investment advisor can serve in either 3(21) or 3(38) fiduciary capacity (occasionally both), it is the 3(16) fiduciary that takes on a majority of the day to day Plan administration and associated liability.
3(16)
An ERISA, Section 3(16) Administrative Fiduciary is named within the plan document as a plan administrator, is responsible for managing the day-to-day operations of the plan and accepts most of the compliance risk and liability.
3(21)
An advisor acting in ERISA, Section 3(21) capacity performs as a non-discretionary Investment Consultant and co-fiduciary.
3(38)
An advisor acting in ERISA Section 3(38) capacity performs as a discretionary Investment Manager of the Plan and full fiduciary.
NPPG Fiduciary Services, LLC (NPPG-FS)
Fiduciary companies uphold a fiduciary standard that goes well beyond the obligation to make recommendations that are suitable for investors. Thus, fiduciary companies are clearly the logical choice when it comes to making important financial decisions. As one of the only retirement plan fiduciary firms that offer independent ERISA 3(16) Fiduciary Services, retirement plan sponsors have been turning to NPPG-FS for guidance on their most complex fiduciary needs. Plan sponsors can appoint NPPG-FS as their company’s 3(16) Plan Administrator to accept most of the fiduciary risk and administrative burden of the plan.
As a 3(16) fiduciary, NPPG-FS is held to much higher standards: placing the interests of each of our clients and plan participants before all others, including our own.
As your trusted partner, NPPG-FS is dedicated to helping every client achieve better business performance and financial results.
NPPG provides a full range of employee benefits services, retirement planning services, investment services, and actuarial consulting. For further information, contact Northeast Professional Planning Group, Inc. corporate office in Red Bank, NJ at (732) 758-1577.