401(k) Specialist Issue 4 - 2016 - 16

401(k) FIDUCIARY
" WELL, GOOD LUCK WITH THAT, "
Troy Tisue good-naturedly laughs when told
we're attempting to gauge advisor awareness and
understanding of the ERISA hieroglyphs.
Far from condescending or dismissive, Tisue,
president of 401(k)-provider Tag Resources,
understands the confusion it causes. The 2016
fiduciary rule frenzy put 3(38), 3(21) and 3(16) on
the front burner. What are they? Which are you?
What's covered (and what is not) by each?
All critically important questions that, if
answered incorrectly, can get 401(k) advisors
sanctioned-or worse, sued.
" When something goes wrong, the courts
will immediately look to identify the fiduciary, "
says Pete Swisher, senior vice president
and national sales director with Pentegra
Retirement Services. " They're going
to find out who's responsible, and that's who
they'll hang it on. "
Swisher relates the scary, yet unsurprising,
anecdote of a well-versed and experienced
401(k) advisor who repeatedly transposed the
numbers, referring to them as 3(31) and 3(28).
" Do advisors know about these ERISA
sections? No, but they are getting there, "
he states. " Ten years ago I was giving a talk
at a conference and asked the audience
members to raise their hand if they'd heard
of 3(38); nothing, crickets. But more people
raise their hands now. "
Here's a little indication of what's on the
line, courtesy of high-profile ERISA attorney
Ary Rosenbaum.
" I believe there will eventually be a Bernie
Madoff of the 3(38) space, " he says. " You'll
always have somebody that tries to take
advantage-it's just a matter of time before it
happens. The question becomes what kind of
measures you have in place to prevent it, or to
ensure the damage is limited. "
If sequential ordering is any guide, 3(38)
would offer the most protection, while
16 ISSUE 4 2016 | 401kSpecialistmag.com
3(16) the least. If only; true to government
form, regulatory caveats exist that make
little sense and add to the stress advisors
already suffer.
" 3(38) has been around a long time, and
most advisors should have an idea of what
that is, " Tisue explains. " More flexibility
exists with 3(16) and what can be included,
but it also means the opportunity to get
torched is huge. "
" And 3(21)? " he cryptically adds. " That's
another term for 'co-defendant.' "
Tisue reveals why in his description of
each, and saves his ire over 3(21) for last:
ERISA Section 3(38)
Pretty straightforward; Section 3(38)
names investment managers who have
discretionary authority as fiduciaries. The
firm must be structured as an RIA, bank or
insurance company, and it must specifically
acknowledge its fiduciary status.
" The fiduciary responsibility is delegated
to the investment manager, who ultimately
has full discretion, " Tisue says. " They have
the credentials and expertise, which is why
you hired them, so ideally you'll leave them
alone to do it. "
ERISA Section 3(16)
Not so straightforward: the Wagner
Law Group defines a 3(16) fiduciary as an
administrator with ERISA reporting and
disclosure duties. It does not refer to traditional
third-party administrators providing
non-fiduciary services.
The challenge (or maybe opportunity) is
that 3(16) services are incredibly broad.
" In an ideal world, it would be the same
definition as a 3(38), except instead of the
word investments you would replace it with
the words regulatory and administration, "
Tisue notes. " In reality, the fine print must
not only be read, but carefully studied, because
it could include anything. "
" Anything " could mean acting as
essentially a surrogate employer in the
plan description on one hand, to simply
sending notices as a TPA on the other, and
everything in between. Which is fine, but
the plan sponsor has to know what they're
getting and what they are not.
" Less than 1 percent of advisors engage
in 3(16) services, " adds ERISA attorney
Jason Roberts, CEO of Pension Resource
Institute. " The challenge is that no two
3(16) descriptions are the same. They are
a creature of the contract and specifically
what that contract states. "
ERISA Section 3(21)
A 3(21) fiduciary includes anyone who
provides investment advice for a fee. From
Wagner:
" Advice relates to advisability of investing.
Either the advisor has investment
discretion, or non-discretionary advice is
provided as follows: on a regular basis; under
a mutual agreement or understanding that
advice will serve as the primary basis for
decisions, and; advice will be individualized
to needs of plan. "
Tisue calls 3(21) a " tough one, " especially
with the new fiduciary rules and making
investment decisions on investments.
" Quite simply, investment advisors are
now accountable, where before they didn't
necessarily have to be. They could react by
stepping up and really helping people, since
they're now fiduciaries anyway. The other
possibility is they will look at the risk tied
to the new responsibilities and say, 'I'm not
going there. I'll never talk to a participant
again.' "
To keep it nice and confusing, a plan
sponsor might think they've outsourced the
http://www.401kSpecialistmag.com
401(k) Specialist Issue 4 - 2016

Table of Contents for the Digital Edition of 401(k) Specialist Issue 4 - 2016
