Administration April 1, 2025

ERISA Rules of the Road

Experts recommend retirement plans conduct fiduciary education and training sessions at least annually and any time a new member joins its plan committee.

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Art by Alex Eben Meyer

In this era of record-level Employee Retirement Income Security Act litigation, it’s become even more important for plan sponsors and plan committee members to understand their roles and legal responsibilities as fiduciaries.

“Under ERISA, the concept of being a fiduciary is a functional one,” says Julie K. Stapel, a partner in Morgan, Lewis & Bockius. “That means if you do things that make you a fiduciary, then you are one, regardless of whether you intended to be or if your governing documents say that you are. That’s why governance is so important.”

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Anyone who has discretionary authority and control over plan assets or plan administration is a fiduciary, and that typically includes all members of a plan committee. Plan fiduciaries must act in the best interest of the plan participants and beneficiaries.

“We emphasize in our reminders to fiduciaries that this is a serious responsibility,” says Michael A. Webb, a senior financial adviser at CAPTRUST. “You really need to act and think about everything as whether you’re maximizing the retirement benefit for participants and beneficiaries.”

While ERISA does not mandate that companies have a plan committee, experts say that a prudent practice is to have a three- or five-member committee, potentially including representatives from human resources, finance or treasury, and information technology.

Having an odd number of committee members can be helpful for votes, says Jodi Epstein, a partner in law firm Ivins, Phillips & Barker in Washington. In practice, however, most votes are unanimous because committees typically discuss issues until they reach a solution that is agreeable to everyone.

While lawyers or senior executives may attend committee meetings, it is better for them not to be committee members, since they may have conflicts of interest that make it difficult to fulfill their fiduciary duties. Ideally, as many members as possible should be plan participants.

Regular ERISA training

Proactive plans should conduct training sessions that cover ERISA rules, as well as current litigation trends, at least once per year and any time a new member joins the committee.

In her training sessions, Epstein typically focuses on the first two ERISA fiduciary requirements, which specify that fiduciaries must act with prudence and for the exclusive benefit of plan participants. She also discusses common prohibited transactions, such as late contributions. This typically involves giving examples of what a committee member might do with their business hat on, such as reduce the match when an employer is facing difficulty, and with their fiduciary hat on, such as implementing design decisions.

Such sessions might also cover the specific governance structure of the committee, explaining what the plan’s documents and committee charters say about fiduciaries’ role and how to carry out those functions.

Webb suggests scheduling training sessions as part of the committee’s quarterly due diligence meetings, but stand-alone sessions can also work when time constraints become an issue.

“I suggest leaning toward having more sessions that are shorter,” he says. “It’s easier to digest the information in bite-sized pieces.”

ERISA does not require such committee-member training, but recent Department of Labor examinations have asked about it, and some insurers want to see it, Stapel says.

“The important thing is to be consistent about it, and if any of your governing documents say how often you’re going to do it, be sure to do it that often and not less than that,” she adds.

Committees should also follow their investment documents when determining how often to review their lineup of investments or providers, and they should ensure that such providers are strictly complying with their service agreements. If not, the committee must either amend the agreement or direct the service provider to become compliant.

It can be helpful to have a fiduciary calendar that spells out what the committee will focus on at each meeting. For example, one quarterly meeting might focus on reviewing plan design, while other meetings might focus on evaluating a specific set of providers or  benchmarking fees.

“It’s probably a prudent practice to take a look at most service providers at least once a year,” Stapel says. “That doesn’t mean you’re doing an RFP or RFI every year, but you want to touch base on the criteria that you’re measuring them on.”

Relying on Plan Documents

In general, committee members should be familiar with all plan documents, which in addition to service agreements, might include a committee charter, investment policy statement and the plan document itself. Webb says proactive committee members often have these documents available during committee meetings and refer to them frequently.

“A good committee meeting is a meeting that references plan documents more than plan investments,” Webb says. “That’s how important they are.”

Since ERISA rules focus primarily on prudent processes, committees should meet regularly and document their meetings with minutes that show they have made decisions about investments or hiring service providers after discussion and considering different points of view. Prudent practice for minutes is to include a summary of discussions.

Ideally, minutes are a summary, rather than a transcript, of the entire meeting. They should show that committee members evaluated a vendor report (rather than simply accepting it as is) or grappled with an issue, Epstein says. The minutes should also show a resolution on each issue discussed, even if the resolution was to table an issue or stick with the status quo.

“Rather than having an open-ended conversation, you want to have some closure, saying that the committee agreed to make a change or not make a change,” Epstein says. “Don’t say they’re going to revisit the issue if they’re not going to revisit it. Don’t put stuff in the minutes you can trip over later.”

Protecting With Insurance

In addition to following prudent practices, plans and committee members can further protect themselves by maintaining appropriate insurance. Since individual committee members have personal liability as committee members, the plan should maintain first-dollar fiduciary insurance to protect those individuals from lawsuits. Many employers also indemnify committee members acting as fiduciaries.

“As long as you’re prudently acting as a committee member, you probably don’t have a ton to worry about, even if you end up being subject to litigation, because you’re almost certainly going to be protected under fiduciary liability insurance,” Webb says.

The appropriate amount of insurance will vary by plan size, since plans will want enough to cover the amount of a litigant’s claim. Insurance brokers can help plans benchmark to determine the right level for their organization.

Under ERISA, plans also must maintain fidelity bonds, which protect against employee or provider maleficence, worth 10% of plan assets or $500,000, whichever is less. Very large plans might consider purchasing additional fidelity bonds, although they are not required to do so under ERISA.

More on this topic:

Does Outsourcing Impact the Need for Fiduciary Education?
Fiduciary Basics for New Plan Sponsors
Administration April 1, 2025

Does Outsourcing Impact the Need for Fiduciary Education?

While outsourcing advisers or consultants can help relieve plan sponsors’ administrative tasks, it does not absolve them of fiduciary responsibility.

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Art by Alex Eben Meyer

As plan sponsors increasingly outsource to advisers and consultants to help administer their retirement plans and keep up with compliance regulations, the need to train and educate fiduciaries on their duties does not disappear.

It is largely a misconception that offloading certain responsibilities to a co-fiduciary 3(21) or a 3(38) adviser, for example, relieves a retirement plan committee of its fiduciary duties. The need for fiduciary education does not go away when a plan outsources; rather, the focus of the plan committee shifts toward oversight and controls.

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Tina Siedlecki, a senior director in the benefits and advisory and compliance group at Willis Towers Watson, says companies today are more focused on their core businesses, and many are looking to expand their support systems to mitigate compliance risks.

“Even if we’re talking about full outsourcing [with] a 3(21) adviser or a 3(38), the fiduciaries can never absolve themselves of fiduciary responsibility,” Siedlecki says. “Whether you’re outsourcing investments for 401(k) administration or pension administration, you still have to train the fiduciaries, … the non-fiduciaries [and] the benefit team members.”

Siedlecki explains that committee members should know who holds fiduciary responsibilities because even if someone on the benefits staff is not a fiduciary, they could step into a fiduciary role by mistake, such as by making an interpretation of the plan or exercising authority over the plan’s assets.

When outsourcing, Siedlecki emphasizes that fiduciaries must monitor contracted advisers and consultants. She says she asks her plan sponsor clients to document the duties they have delegated to outside providers and to make a clear list of what those responsibilities are and who is fulfilling them.

Many plans are offering education to their plan fiduciaries. Nearly 44% of plan sponsors responding to PLANSPONSOR’s 2024 Defined Contribution Survey said they or their plan committee members have participated in fiduciary training in the last two years. That figure was at least 53% for plans with at least $50 million in assets and 81.6% for the largest plans, those with at least $1 billion in assets.

How Common Is Outsourcing?

According to Morgan Stanley’s 2024 Retirement Plan Survey, 55% of plan sponsor respondents said they use a 3(21) investment adviser, and 27% said they use a 3(38) investment adviser.

A 3(21) adviser, or co-fiduciary, provides advice or recommendations to the plan sponsor but does not make final decisions regarding the plan’s investment lineup. A plan sponsor who uses a 3(21) is typically looking for outside investment expertise but wants to retain final discretion over the plan. In comparison, a 3(38) adviser functions as the investment manager for the plan and has the authority to make changes in the investment lineup.  A 3(38) is considered a plan fiduciary.

Morgan Stanley found that while 3(21) relationships are still about twice as common as 3(38) relationships, the gap is likely to continue closing. Most 3(38) users have initiated these engagements in the past five years, and about half of the non-3(38) users are considering switching to this type of engagement, according to the report.

David Levine, a principal in Groom Law Group, points out that there are “many flavors” of 3(38) advisers, 3(21)s and outsourced CIOs. These outsourced services are not the same, but Levine says they all run in the same family, and some are more comprehensive than others.

“Sometimes [an outsourced adviser] [says] they cover the landscape, sometimes they cover narrow things,” Levine says. “A plan sponsor or an appointed fiduciary needs to know: ‘What am I actually hiring for and what am I still owning?’”

Importance of Monitoring Providers

Similar to picking investments or a new recordkeeper, Levine says fiduciaries still need to monitor their service providers and evaluate if they are adding value and if their price is reasonable.

“If you’re hiring a 3(38), you don’t want to be in the middle of picking every investment, because that’s why you have a 3(38) in the first place,” Levine says. “But you want to know how is the performance, how are their fees and understand why they are making their decisions.”

Levine adds that much marketing of pooled employer plans falsely claims that plan sponsors have less fiduciary responsibility because they are outsourcing the administration of the plan. He emphasizes again that fiduciaries who join a PEP still have a responsibility to monitor the provider.

Committees Still Have Significant Responsibility

Theresa Conti—executive director of the Cerrado Group, a collective of independent third-party administrators—says plan committees, whether they outsource services or not, should be meeting regularly, keeping detailed minutes and getting trained on topics that are important and relevant to the administration of the retirement plan.

Conti says she works with recordkeepers and TPAs to conduct fiduciary education training and recommends that committees meet at least twice a year, or quarterly for bigger plans, to participate in fiduciary training.

During these meetings, Conti says the plan’s adviser, whether a 3(38) or a TPA, should be present, especially as the committee is discussing the operations of the plan.

“If we were going to talk about operations of the plan, who knows that better than the TPA?” Conti says. “Then when we talk about plan review, the TPA has fees, the recordkeeper has fees, the adviser has fees, the investments have fees. All of those kinds of things need to be covered at that meeting. I feel strongly that it’s not just a committee meeting … these other people who are an important part of the plan need to be part of that as well.”

Siedlecki says some plans also use a 3(16) fiduciary, a service provider that handles the day-to-day administrative work for a retirement plan. The more that plans move toward outsourcing, Siedlecki says, the more a 3(16) fiduciary can help with improved compliance, but she also says it is important that the plan committee monitor the 3(16) fiduciary.

More than 54% of plan sponsors surveyed by PLANSPONSOR in the 2024 Defined Contribution Survey reported employing a third-party 3(16) fiduciary in some capacity.

In a recent training that Siedlecki conducted, she says the committee discussed topics like fee benchmarking, missing participants and ensuring that participants taking required minimum distributions are being paid out in time. She says a big focus of her training sessions is educating the committee on changes resulting from the SECURE 2.0 Act of 2022.

“We educate our committees on what those changes are so that then when they work with their vendors, like a 3(16) vendor, they can ensure that they’re compliant and can contemplate [compliance] when a vendor might be giving them a different view,” she says. “We think committee members should have an understanding of the regulations and the rules and how they’re changing.”

Levine says it is also important that committees are tracking how their providers are changing. For example, they should be aware if their adviser or consultant’s business is being bought, sold or reorganized and how their services may be changing.  

“It’s important to have a clear, objective view of business changes that could impact your plan, because there’s nothing wrong with offering more services, but it’s important to understand how that fits into your relationship and how, as a fiduciary, you monitor and evaluate solutions,” Levine says.

More on this topic:

ERISA Rules of the Road
Fiduciary Basics for New Plan Sponsors

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