Be Wary Of Providers Bearing 401(k) Fiduciary Guarantees

Twice today I was asked by a TPA and a major mutual fund company/TPA about my view concerning some of the bundled providers touting fiduciary guarantees or fiduciary roles that they are serving.  Using the term fiduciary can be very misleading because it may give the idea that if the plan sponsors utilizes the services that these bundled providers will assume fiduciary responsibility for the plan sponsor’s plans when all they really is making some sort of money back guarantee gimmick that they may indemnify you if you adhere to their programs and their fund lineups.

The word fiduciary being thrown around is useless and misleading unless the plan sponsor knows that the level of fiduciary role is co-fiduciary, ERISA 3(38), ERISA 3(21), or none of the above. The way fiduciary being thrown around reminds me of Kosher foods. Kosher foods adhere to Jewish dietary laws and are under rabbinical supervision. While most non-observant Jews don’t think twice about who supervises the food’s Kashruth, observant Jews do. Observant Jews wants to know the Rabbis behind the rabbinical supervision and whether their supervision can be trusted. It is irony that most observant Jews won’t eat Hebrew National hot dogs even though they answer to a “higher authority.”

While most plan sponsors won’t think twice into looking into what exactly the fiduciary roles that a bundled provider is touting, a more vigilant plan sponsor will. I think it is extremely important for plan sponsors not to trust any fiduciary marketing gimmick that any provider or investment advisors throws out there and actually determine what fiduciary services they are getting for their money. If not, they may be in for a shock when they get sued by an angry participant.

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7 Responses to Be Wary Of Providers Bearing 401(k) Fiduciary Guarantees

  1. We are often asked the same questions regarding fiduciary warranties and our answer is to make sure that the plan is covered for first party fiduciary insurance with adequate limits and scope of coverage.

    We are not opposed to having a plan possibly indemnified from a third party warranty but it should not create a false sense of security for plan sponsors, trustee or plan committees.

    We also agree reading the find print is important not all fiduciary warranties are created equal.

    That being said we have worked with a third party provider to add warranties to their platform of funds and processes but have made sure that it is real coverage with an “A” rated carrier. We also provide quotes to the plan sponsors for first party coverage on top of the warranty.

  2. Jason Grantz says:


    Well stated. As a representative of a National Trust Company that takes on a full Discretionary Trustee position on 100% of our clients, we have to fight against the fiduciary marketeers (mouseketeers?) often. I’m not sure if you subscribe to this or not, but in this quarters edition of Journal of Pension Benefits (winter 2011) I co-authored an article entitled ‘Deconstructing the Discretionary Fiduciary Models – ERISA Section 3(38) Investment Managers vs. Discretionary Trustees’. We talk a little bit about the reality of today, where ERISA Code Sections have devolved into Marketing terminology, often used or sold incorrectly. Thanks for this post.

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  4. Comparing it to Kosher food is a good analogy.

    Ed Lynch and I have written an ebook that should be published (hopefully) fairly soon. It includes a chapter about fiduciaries and the importance of understanding how fiduciary duties are allocated in plan documents, trust agreements and in various contracts with service providers.

    What is missing in all of the discussions is an understanding of where a fiduciary’s liability begins and ends. Tess Ferrera explains the “to the extent” concept beautifully in “The Fiduciary Answer Book.”

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