ST. PAUL, Minn., Oct. 18 /PRNewswire/ -- When employers make defined contribution retirement plans (such as 401(k)) available to employees, federal law holds them responsible for the selection of retirement plan investment options.
Some employers are fine with that because they have in-house investment expertise. Others have some knowledge, but not enough to make the investment selections without some advice from an expert. A third group prefers to delegate that responsibility completely.
"It's important that employers consider their qualified plan fiduciary obligations carefully," said Kirk Paulsen, senior associate actuary, Securian Retirement. "Employers that choose to 'do it myself' have a high level of fiduciary responsibility for 401(k) investment option choices."
In an article posted on SecurianRetirementCenter.com entitled "Choosing the right level of investment liability: 5 questions for plan sponsors," Paulsen describes the three fiduciary roles available to plan sponsors under sections 3(21) and 3(38) of ERISA – the Employee Retirement Income Security Act of 1974. In general, the plan sponsor holds complete fiduciary responsibility for retirement plan investment selection. However under a properly structured ERISA section 3(38) program, the employer's fiduciary responsibility extends only to the selection of an investment manager.
- Sole responsibility – "Do it myself."
- Co-fiduciary assistance – "Help me."
- Investment manager – "Do it for me." Section 3(38) applies.
Choosing the correct fiduciary approach can be difficult. In the paper, Paulsen offers five criteria employers can use to determine the level of investment fiduciary liability to keep or transfer:
- Do conflicts of interest exist? It's a conflict of interest when a fund company requires employers to select a pre-defined group of investments rather than single options that best fit that company's plan.
- What's my investment knowledge? Does the plan sponsor have enough in-house expertise to handle investment selection and the liability that accompanies it?
- What's my preferred level of involvement? In other words, how much time do I want to spend analyzing, comparing, and selecting retirement plan investments? An employer that does not want to divert senior management from core responsibilities may decide to hire an expert.
- What's my liability comfort level? As plan fiduciary, the employer is responsible for all investment selection discussions and outcomes. The least risky option is to transfer those responsibilities to an investment manager under a properly structured section 3(38) arrangement.
- What's my price point? The more outside expertise a company uses to manage the retirement plan, the more it's going to cost. However, the risk reduction may be worth it.
"Regardless of the choice, ERISA is clear that plan sponsors must always act in the best interest of the participants covered by the plan," said Paulsen. "They must discharge their duties as a fiduciary with the care, skill and diligence that would be exercised by a prudent person familiar with such matters."
Since 1880, Securian Financial Group and its affiliates have provided financial security for individuals and businesses in the form of insurance, investments and retirement plans. Now one of the nation's largest financial services providers, it is the holding company parent of a group of companies that include Minnesota Life Insurance Company. Securian Retirement is a unit of Minnesota Life and offers a full range of retirement products and services to individuals, plan sponsors and advisors. All Securian retirement plan products are offered through a group variable annuity contract issued by Minnesota Life. Products and services are provided by one or more of the following affiliates of Securian Financial Group, Inc.: Minnesota Life Insurance Company or Securian Retirement, a unit of Minnesota Life, 400 Robert Street North, St. Paul, MN 55101-2098.
SOURCE Securian Financial Group, Inc.