With apologies to anyone associated with the 1967 ground breaking movie, The Graduate, my headline is a riff on the scene to your right featuring a young Dustin Hoffman as Benjamin, and the late character actor, Walter Brooke, as Mr. McGuire.
Mr. McGuire: I want to say one word to you. Just one word.
Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: Plastics.
Benjamin: Exactly how do you mean?
Mr. McGuire: There is a great future in plastics. Think about it. Will you think about it?
If the Graduate were made today, there’s a good chance that the one word would be “fiduciary”. Well, maybe not “fiduciary” exactly, but a word (or two) related to it like “investments”, “stock market”, or “financial services”.
And there’s also a good chance that one of those jobs in the financial service sector would be with a 401(k) service provider in which fiduciary services have become an integral part of its offering.
Since the beginning of 401(k) plans in the early 1980s, 401(k) service providers have introduced an increasing number of services to stay competitive with other providers. Not surprisingly, most 401(k) plan providers now offer some sort of fiduciary support to help employers manage their fiduciary responsibilities with respect to plan investments.
There are different levels of fiduciary support in the marketplace; and thus, it’s important for plan sponsors (themselves, fiduciaries) to understand the differences. In general (very general), here are the five levels of fiduciary support services available in the marketplace in the order of highest to lowest fiduciary protection:
- ERISA Section 403(a): Trustee with full discretion.
- ERISA Section 3(38): Independent advisory firm with full responsibility for selecting and monitoring plan investments.
- ERISA Section 3(21): Independent advisory firm providing participant directed investment choices.
- Due Diligence Support: An evaluation process with regard to the investment options providers offer under their retirement programs.
- Fiduciary Warranty: A Certificate of Warranty that is generally available to plan sponsors if they select at least one fund in designated asset classes.
Which one of these fiduciary support services is best? There is no “best” one. Each plan sponsor must decide based on individual facts and circumstances such as availability, cost, and other factors.
And here’s the important takeaway: All fiduciary responsibilities cannot be delegated away. The plan sponsor always retains the responsibility to monitor the service provider on a periodic basis.