Wednesday, April 6, 2011

The 3(38) IM & Discretionary Trustee Service Model

Over the last several years, there has been increasing awareness of the various fiduciary roles that retirement plan advisors and consultants play when serving their retirement plan clients. In previous posts, we have tackled the topics of Full-Scope §3(21) vs. Limited Scope §3(21) Advisors, as well as how fiduciary delegation and appointment functions. In this post, along with supporting documents, we are focusing on the two main discretionary fiduciary models: that of a Discretionary Trustee and that of an ERISA Section 3(38) Investment Manager.

Please peruse the following Journal of Pension Benefits article we co-authored which discusses the differences between the duties of a Discretionary Trustee and those of an ERISA §3(38) Investment Manager (IM), view article. We believe this is an important topic given Unified Trust’s position as a Discretionary Trustee and given that we have recently launched a new service model called Investment Manager, more information.

In the article we discuss a model for comprehensive Retirement Plan Fiduciary Governance we’ve called The Two Party System, illustrated here.

The idea is for the plan sponsor to hire two separately engaged, independent (of each other) fiduciaries. They may be a Discretionary Trustee and an IM or a Full/Limited Scope §3(21) Advisor. One of these parties does the work required to ensure proper fiduciary governance and the other oversees the first which allows proper adherence to the Duty to Monitor. In the absence of two, the party responsible for oversight is the Plan Sponsor and, in most cases, little if any fiduciary liability exposure is shed. The combination of a Discretionary Trustee and an IM or §3(21) Advisor together make for a potentially superior model to a Discretionary Trustee, §3(38) IM or §3(21) Advisor alone.

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