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Understand Fiduciary Responsibility

By January 31, 2019 November 22nd, 2019 No Comments

Risk Management:  Understand Fiduciary Responsibility

Is your company prepared to defend a class action lawsuit?

Recent headlines read, “Lawsuit filed claims Transamerica Corporation is misusing retirement fund.” Imagine for a minute this was your company. What is the first thing you would do?  Would you break out in a cold sweat or simply be annoyed but confident in your approach?  Would you wonder what you could have done differently?

A typical class action lawsuit occurs when a claimant(s) sues a defendant on behalf of a group. Transamerica has approximately 17,000 employees. It only took three of them to file a class-action lawsuit.  The purpose of this article is not to weigh in on the merits of that case specifically but rather, what we might learn from it.

The Plaintiffs claim Transamerica has failed to select investment options and monitor their performance, which is required by the Employee Retirement Income Security Act (ERISA). “Transamerica retained too many poor-performing investment options on the Plan which were highly detrimental to the retirement savings of Plan participants,” David Sanford, Chairman of Sanford Heisler Sharp and Counsel for Plaintiffs. “Transamerica and the committees should be held to the highest standard as fiduciaries, but in this case, they fall below the lowest standard.”

Here’s what we know, ERISA identifies six prudent procedures:

  1. You should have a written investment policy
  2. Plan assets must be diversified
  3. Investment decisions must be made with the skill and care of a prudent expert
  4. Performance must be monitored
  5. Expenses must be controlled
  6. Prohibited transactions must be avoided


Sounds simple enough, right?

Most plan sponsors lack the time, resources and expertise to meet the standards as laid out by ERISA so many rely on brokers, banks, investment advisors or retirement plan vendors to help. But if push came to shove, would they truly be there to defend you?  Does your current advisor accept fiduciary responsibility or simply held to a suitability standard?

There are a couple of potential ways to manage and even reduce your fiduciary liability. One way is through the purchase of Fiduciary Liability Insurance and the second is to hire a 3(38) Investment Manager.

“Under ERISA Section 409 both the employer and the outside provider they’ve hired in a fiduciary capacity are potentially exposed to significant liabilities,” states colleague Sharon Anderson (CPCU, CRM, ARM, CPHRM), Business Solutions Advisor at The Accel Group. “Retirement plan clients we work with are relieved of this burden. We take on the fiduciary liability on our client’s behalf. This is just one of the ways we help our clients reduce their risk.”

Who is a Fiduciary?

Any individual included in the plan document by name or title, along with anyone who has discretionary decision-making authority over the administration or management of a plan or its assets may be considered a fiduciary under ERISA.  Fiduciaries commonly include the plan administrator, the plan trustee, directors and officers and internal investment committees.

Employee benefit plans fall into two main categories;

  • Retirement Plans (benefit pension plans, profit sharing or savings plans such as 401(k)s, 403(b) plans, stock purchase plans and ESOPs.
  • Welfare Plans (include medical, dental, life and disability plans)

Engaging an ERISA § 3(38) fiduciary transfers the responsibility and risk associated with the selection and monitoring of the plan’s investment options. It is critical, however, that plan sponsors realize that even with an appropriately structured 3(38) arrangement, such sponsors still have the responsibility to monitor their 3(38) and be aware of the ERISA-related liability associated with hiring, monitoring, and if needed, replacing them.

Hiring an ERISA § 3(38) fiduciary is essentially outsourcing your fiduciary liability.

At The Accel Group, we are passionate about working with clients to identify their risks and the most efficient and effective way to manage or reduce them. As you make decisions that impact your lifestyle, consider the expertise and industry knowledge our Advisors can provide. Let us help you make informed choices that are right for you.

Author: Stacie Brass (AIF ®, CPC) – Partner, Investment Advisor Representative, Accel Wealth Management

 Contact an Advisor: advisor@accelwealthmanagement.com | 319.596.1101

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory Services offered through Accel Wealth Management, Registered Investment Advisor. Cambridge and Accel Wealth Management are not affiliated. Registered branch addresses are 602 Main Street, Cedar Falls, IA 50613 and 300 E. Bremer Avenue, Waverly, IA 50677.