Fiduciary Delegation Revisited

Scott Simon, firmly ensconced as one of our favorite columnists, has published the third installment in his series on fiduciary delegation, the process by which retirement plan sponsors can outsource all but the legally-required minimum of their fiduciary responsibility for the day-to-day operation of their ERISA plans.

This is a great series. If you care about these issues, we recommend the entire column and its predecessors (see our coverage here, which includes links to the first two installments). Here are a couple highlights (emphasis added in bold):

It's important to note that some in the retirement plan industry have created marketing gimmicks to capitalize on the cache and power of being an ERISA section 3(21) fiduciary. Upon closer examination, though, the "discretion" that's actually accepted for any fiduciary responsibilities in this kind of marketing-driven environment is essentially zero, in my opinion. Such entities create the appearance of fiduciary stature, but in fact they turn out to be fiduciary nothings. One way to recognize such pretenders from a real named independent fiduciary under ERISA section 3(21) that has absolute responsibility to operate a qualified retirement plan through delegation from the plan sponsor is to be on the lookout for the term "co-fiduciary." (My four-part series three years ago documented this.) An honest-to-goodness named independent fiduciary would never use the term "co-fiduciary;" the term has no legal meaning in ERISA. [Here's our take on this pesky issue.]

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Once a named independent fiduciary has accepted appointment of all the foregoing duties, it then has the right and the power to hire (and fire) all other professionals such as investment advisors, custodians, third party administrators and other service providers to the plan. This, after all, is the entire point of taking the approach set forth in this series. Delegation of these duties to different people or organizations is advantageous for purposes of efficiency and to encourage favorable outcomes for plan participants. Even more important, such delegation transforms a high risk scenario to a low risk one by appointing independent entities with specialized expertise to perform these functions.

Scott always does a nice job of teasing his next column; here's our favorite part of this month's tease:

I'll also explain why very few plan sponsors have [ever] even heard of the kind of significant risk mitigation described in this series--much less understand how they can benefit enormously from it.

We'll guess that the industry's established "model in which...non-fiduciary product pushers are the inmates that run the asylum" will be an important part of that story.

Source

W. Scott Simon, "Delegation for Plan Sponsors (Part 3)," Morningstar.com, June 8, 2009