Who Is a Fiduciary?
For purposes of ERISA you are most likely a fiduciary if you:
- Sign the Form 5500 or other plan filings
- Sign the Plan Document as trustee or plan sponsor
- Choose the plan’s providers or sit on a committee that hires those providers, e.g. record keepers
- Exercise authority over the plan whether involving investments or administrative functions
- Make decisions that affect plan assets
- Are identified as a named fiduciary in plan documents
- Make recommendations to purchase, hold, or sell plan assets for a fee whether direct or indirect, i.e. from the plan or a third party
Typically, the last bullet describes an investment advisor, usually an outside third party rather than an employee or owner of the plan sponsor. In addition to trading securities for the plan any recommendation on the management of the securities, e.g. by preparing or consulting on the preparation of the Investment Policy Statement (IPS), asset allocation, and advice on distributions from the plan such as rollovers.
Determining whether a recommendation has been made is an objective process based on how individually tailored the recommendation appears. Treasury Regulation §2510.3-21 also indicates that even providing a selective list of securities to the plan as appropriate for that plan would be considered a recommendation (also see IRC §4975(e)(3)(B)). However, providing a list of investment alternatives to a plan fiduciary from which that fiduciary can select investments that participants or beneficiaries can direct the assets in their accounts is not considered making a recommendation and therefore does not make the provider of the list a fiduciary. In addition, if a third party provides investment alternatives that satisfy objectives set forth by a plan fiduciary, e.g. performance, expenses, volatility, asset classes, that third party is not making a recommendation for the plan and is not a fiduciary.
General communications like newsletters, public commentary, presentations in conferences, research prepared for general distribution, statistics generally available to the public, e.g. trading volume, price quotes, performance reports, is not considered a recommendation. The same is true for investment education including rates of return among asset classes, effects of inflation, assessing risk tolerance, concepts of risk and return, among others.
Lastly, asset allocation models based on different time horizons and risk profiles would not be considered a recommendation if the models are based on generally accepted investment theories, the assumptions on which the models are based are included with the models, participants using the models are directed to consider their other investments and the models do not include or suggest any specific investment alternative available in the plan.
This summary is not meant to be all inclusive but only a guide. For a complete analysis of whether an individual is a fiduciary as it applies to a specific plan consult a qualified advisor.
Stephen Abramson, CPC APS Pension Services Inc. firstname.lastname@example.org