Reducing 401(k) Investment Liability

March 21st, 2018

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If you are a business owner who offers a retirement plan for your employees, you may have recently heard a lot of buzz around the Fiduciary role. As the business owner and plan sponsor, you always serve in a fiduciary role since the power to make decisions on behalf of the plan rests with you as the plan sponsor. Along with responsibility comes liability, which you can never fully eliminate.  However, there are ways that you can substantially reduce it by partnering with service providers who will serve as a named fiduciary on your plan.  Since much of the liability is wrapped up in the investments that the plan offers to the participants, it makes sense to engage an investment fiduciary to take on that responsibility.

First Interstate Wealth Management offers two different types of fiduciary services for retirement plans. If, as a plan sponsor, you would like assistance with the selection and monitoring of the plan’s investment lineup, but want to retain control, a 3(21) fiduciary service is the best fit for you. When working with a 3(21) fiduciary service, the plan sponsor and the 3(21) fiduciary share in the liability for the investment choices. If you are not comfortable with that level of liability or don’t feel that your expertise lies in choosing the plan’s investments, it might be best to utilize a 3(38) fiduciary. This would shift the selection and monitoring of the investments entirely to the 3(38) fiduciary, who takes on the liability for the investments offered by the plan.

Both 3(21) and 3(38) fiduciaries accept fiduciary responsibility and adhere to the Employment Retirement Income Security Act (ERISA) 404(a)’s duty to serve solely in the interest of plan participants and must also meet the ‘prudent man’ standard of care (a rule that was originally enacted in the 1830s). In other words, fiduciaries must act with the prudence, discretion, and judgment they would use for managing their own accounts. Plan sponsors retain the responsibility to select and monitor the 3(21) or 3(38) fiduciary, making sure that they continue to be a solid partner on their plan. When engaging the services of a 3(21) or 3(38) fiduciary, plan sponsors should consider the fiduciary’s experience, skill, and level of expertise, in addition to the amount of control they want to retain on the investments.

To learn more about the fiduciary services available for you plan, please contact the First Interstate Wealth Management Retirement Plan Services team at 406-255-5205, option 3, or

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