Mitigating your fiduciary liability: pilot or co-pilot?

When hiring your company’s 401(k) advisor, choosing a fiduciary mitigates your plan sponsor liability. But which type is best?

Metaphorically, a 3(21) fiduciary acts as your co-pilot making plan asset recommendations, but the liability remains shared if the “plane crashes.” With a 3(38) fiduciary, you instead get out of the cockpit and become a first-class passenger, allowing the pilot to select and monitor the plan’s assets. He/she becomes solely responsible for flying the plane: if the quality of the investments fail to meet strict criteria outlined in the plan’s Investment Policy Statement, your liability is mitigated even if participants sue due to “air sickness.” You did the prudent thing hiring the 3(38), which is all the courts require.

Both types of fiduciary have standards of competency, but a 3(38) gives you peace of mind. Look for the stipulation of 3(38) services in their agreement, in addition to proof of insurance and bonding as a 3(38) fiduciary in writing. Both are important the next time you hit turbulent air!

By Joe Bert, Certified Financial Planner™

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