RMD changes affected by SECURE and CARES Acts

The Required Minimum Distribution (RMD) rules for retirement plans have been greatly affected by the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act. The changes are straightforward for Defined Contributions type plans (401(k)s) and Individual Retirement Accounts (IRAs), but a bit more complex for Defined Benefit plans. This may require clarification, and, most likely, a technical amendment of the Code.

The SECURE Act changed the starting age for RMD’s from age 70 ½ to age 72. Effective January 1, 2020, the Required Beginning Date (RBD) for RMD’s is as follows:

  • Those who turned 70 ½ in 2019 (born prior to July 1, 1949) have an RBD of April 1, 2020, or, if later, after separation from service.
  • Those who turned 70 ½ after December 31, 2019 (those born after June 30, 1949) will have an RBD of April 1, after the later of the year they reach age 72 or separation from service.
  • Keep in mind, a 5% owner and certain of their family members must begin minimum distributions at their required beginning date, regardless of separation from service.

CARES Act Eliminates RMD’s for 2020: Section 2203 of the CARES Act eliminated the RMD’s under Defined Contribution plans and IRAs to be made during 2020. The abrupt drop in the market since December 31, 2019, made it unfair to calculate and distribute an RMD based on the prior December 31 value. Thus, rather than distribute a disproportionate amount of the current value as an RMD, Congress has decided to waive RMD’s for 2020. This waiver does not affect Defined Benefit or Cash Balance Plans, whose RMDs are based on a benefit rather than an account balance.

For Defined Contribution (401(k)) plans and IRAs, those affected by the 2020 RMD waiver will include:

  • Anyone due to take an RMD during the 2020 calendar year
  • Anyone who was 70 ½ in 2019 and waited to take the first RMD during the grace period from January 1, 2020 to April 1, 2020. The CARES Act also included a provision that if the 2019 distribution was taken in early 2020, prior to enactment of the law, the distribution may be rolled back to the plan or an IRA and remain tax sheltered. We await guidance on whether the 60-day rule will be waived or this.
  • Five-year rule extended to six as follows. Based on how the IRS handled the RMD 2009 waiver; if 2020 is the fifth year after the year of a participant’s or IRA owner’s death, then the RMD requirement to take all the money out by the end of this (the fifth) year is waived and the money does not have to be distributed until the end of the following year. In addition, beneficiaries using the 5-year rule for a participant who died prior to 2019, add a year to the 5-year rule for the waiver of the 2020 RMD year.
  • Designated beneficiary 10-year rule. The additional year would seem to apply to the new 10-year rule if the participant died during 2020.

IRA Reporting Issue: IRA’s must notify IRA owners and the IRS that an RMD is due for the year. This notice was due to IRA owners by January 31, 2020. Since this law changed on December 20, 2019, institutions’ programs could not be timely changed to prevent this notice from going to individuals turning age 70 ½ in 2020. IRS Notice 2020-6 provided a grace period for institutions to notify these IRA owners that they are not required to take a distribution in 2020 (but rather in the year they turn 72) This had to be done by April 15, 2020. Further guidance is expected since the CARES Act eliminated RMD’s for everyone for 2020. Therefore, RMD Notifications made to everyone over 70 ½ also needs to be addressed.

The SECURE Act also included considerable changes to the beneficiary rules, eliminates the IRA rule that prohibits IRA contributions after age 70 ½ and made changes to the Qualified Charitable Distribution rules to coordinate with the post 70 ½ IRA contributions.

Post 70 ½ IRA Contributions: The restriction on the ability to make annual contributions to a traditional IRA as of the year age 70 ½ is attained, had been in place since IRA’s started in 1975. Section 107 of the SECURE Act repealed the maximum age for making a traditional IRA contribution (Roth IRA’s were never subject to this rule). Effective for tax years beginning on January 1, 2020, traditional IRA Contributions may continue to be made after age 70 ½ if an individual has earned income.

Qualified Charitable Donations: Generally, a Qualified Charitable Distribution (QCD) is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. Although the age for RMDs has increased to 72, the age for QCDs remains 70 ½. With no RMD to be satisfied, the incentive to those who can wait until the age of 72 to take an RMD is expected to reduce the future QCD’s until RMD’s are due at age 72. Additionally, the elimination of RMD’s in general for 2020 has many charitable organizations concerned that QCD’s may drop dramatically for 2020. Section 107 of the SECURE Act also limits the amount of the IRA distribution that may be treated as a Qualified Charitable Distribution (QCD) based on the cumulative IRA deductible contributions made after age 70 ½.

Plan Administrative and Document Impact:  All plans must be amended to increase the Required Minimum Distribution age to 72, and defined contribution plans must be amended for the elimination of the 2020 RMD’s, although both Acts state that the due date for these amendments is the last day of the plan year beginning after December 31, 2021 (or the end of the 2022 Plan Year for calendar year plans). A plan termination amendment will need to include the changes until the actual plan document amendment deadline. Affected participants should be notified. EJReynolds sent a CARES Act election form to all clients and referral partners in April to document the Sponsor’s election of certain provisions and will continue to adjust, as necessary. Please contact your EJReynolds’ Plan Consultant with any questions.

The power of the right question at the right time

Assessing a potential prospect can be tricky. Knowing what questions to ask at the proper time in the sales cycle can be the key to landing and satisfying a new client. Broad, open-ended sales questions may help find out what’s going on in your prospect’s world, but they run the risk of wasting what little precious time that a prospect may give you.

When prospecting for a 401(k) plan, there are two main decision makers: 1) the CFO with little time to waste, or 2) the HR director who typically has too much on their plate to begin with and doesn’t want more. By merely calling these prospects, you are interrupting the status quo and you must be prepared to give them a compelling argument to make a change. As they say, change only happens when the pain of staying the same is greater than the pain of making a change.

Prospecting for 401(k) plans is a three-step process: 1) Find Promising Prospects, 2) Call The Prospect, and 3) Meet With The Prospect. It can be that easy as long as you are well prepared and know when to ask the right questions. Whether you are new to 401(k) plan prospecting or an experienced 401(k) advisor trying to train your staff, this guide will list important questions that will engage a prospect. You will also find some key questions to avoid during the sales process.

  1. Find Promising Prospects

Finding the prospect is, believe it or not, the easiest part. There are plenty of lists available for 401(k) plans to call on, the trick is to find one that you may already have a relationship with. Relationships are key in this industry, and a great 401(k) advisor will have great relationships with their clients. Working with a third-party administrator (TPA) can help you pull a listing of potential candidates in your area and provide a warm lead.

  1. Call The Prospect

Once you have a list of targets, calling on the prospect may be more difficult. Even if you have a relationship with a decision maker, it may be difficult to catch them directly on the first try. You may have to call several times before you can get the right connection, but when you do, BE PREPARED! Remember, plenty of demographic information can be gleaned from the Form 5500, which is public record and may easily be obtained at the Filing Search tab of www.efast.dol.gov.  Of course, the assets, the number of participants (both eligible and participating} and the employee and employer contributions are clearly indicated on the first few pages, as are the availability of participant loans. There are several codes detailed in the “Plan Characteristics” questions which indicate if there is an age weighted or cross-tested profit sharing allocation, if there are matching contributions, and if participants are directing the investment of their account balances. Ask a TPA to provide you a complete listing of these codes and their meaning. Maybe more important demographic questions  you could ask would be:

  • Is there a high percentage of job and skill diversity among your employees?
  • What is the eligibility requirement to join the company 401(k) plan?
  • How many shifts do you have?
  • How many locations do you have?
  • What percent of employees are within five years of retirement?

These demographic questions can be the solution in helping you build your value proposition and provide the “why” for why is it worth the pain to change to your services?

Once you have the demographics, get to the operational issues. Certain, specific questions can show your industry knowledge and spark further conversations:

  • Does your plan offer auto enrollment and auto escalation features?
  • Do you process payroll internally or through an outside vendor? Which vendor?
  • How often can eligible employee enter the plan? Change their savings rate?
  • What do your plan participants say about the plan? The website? Statements?
  • Does the company 401(k) plan allow for loans and/or hardship withdrawals? Are these provisions being abused?
  • Does the company have a Health Savings Account (HSA) program?

Large plan filers (those with more than 100 participants) must include more detailed information on the Form 5500 and related schedules since they must attach an opinion from an Independent Qualified Public Accountant. These audited financial statements include more information such as the eligibility requirements, the underlying investments and several other operational issues. They may list the auto enrollment features of the plan (if any), if the plan has a Safe Harbor Provision or in-service distribution options. What it won’t list is very specific questions regarding the plan investments:

  • Are you currently contracting with an ERISA 3(21) or 3(38) Advisor?
  • How were the investment options chosen? How often are they reviewed?
  • How do employees make investment allocation decisions? Worksheets, online questionnaires?
  • Do you have an investment policy in place?
  • Who holds the largest account balance? (A $10,000,000 plan that saves 50bp on expenses saves $50,000 a year, proportionately benefiting the largest account holders.)

Service issues and concerns are not listed in the audit, but can be important to the decision makers:

  • What are the top concerns of your employees? Are there other enhancements you want to make to the 401(k) plan?
  • Do you currently survey employees to gather their concerns and understanding of company benefit programs?
  • When was the last enrollment meeting or group education meeting? How frequent would you like someone onsite to work with your employees?
  • What types of issues arise, i.e., payroll transmission, compliance testing, notices, timely responses, that has caused you concern enough to consider a change?
  • Is Fiduciary protection, improved employee retirement readiness, or overall financial wellness for your participants important to you? Which is most important? Least?
  1. Meet With The Prospect

Once you have a meeting in place, summarize your findings to a one page sheet showing specific improvement areas and procedures that you will help put into place once you are hired. Possible opening questions can include the following:

  • Tell me what you would improve about your 401(k) plan?
  • There are two types of 401(k) programs, those that involve an Advisor to assist you and your employees and those that don’t. Which one do you have?
  • What goals are you working to accomplish with your company 401(k) plan? ‐ Increase participation ‐ Increase contributions ‐ Decrease loan usage ‐ Decrease hardship withdrawals ‐ Improve employee retirement readiness
  • How does your plan compare to companies you compete against for the same employees?
  • What would need to change for us to have an opportunity to serve your plan?

Do not automatically assume you need to change everything to show you can bring enhanced services to the plan. Taking over the plan as Broker of Record is the first goal. There may be nothing wrong with the plan that more attention and care won’t fix. Making small changes, for instance, to the investment lineup or adding some enhanced plan design options, might make all the difference in the world to the client and won’t totally disrupt the day-to-day activities of the company. Remember, you’re here to help the client.

You may also find business development value in our article “The 7 Step Guide to Growing your 401(k) Business”. Feel free to call us with additional questions on developing your 401(k) business. We love to partner with advisors for a win-win relationship.

The 7 Step Guide to Growing your 401(k) Business

Most financial advisors are skilled salespeople, but 401(k) advisors require a different sales approach and an entrepreneurial mindset. The buyer isn’t always the end user and sales pitches are aimed at a human resource executive, a CEO or a CFO, rather than plan participants. Most financial advisors are more accustomed to selling to individuals, whereas 401(k) plans, especially those of larger organizations, involve tailoring conversations to a decision maker or committee before any presentations are made to the ultimate users; the participants.

In addition, to be a successful retirement plan advisor the service model must be tweaked. Whereas financial advisors meet with clients perhaps a few times per year, an average 401(k) plan client requires more attention. Advisors are expected to provide investment monitoring reports, set up meetings for new plan enrollees, and facilitate fiduciary committee meetings several times a year.

For the financial advisor who seriously wants to increase 401(k) business or those who want to get started in the 401(k) business, there is plenty of opportunity. Those willing to do a top-notch job as a 401(k) advisor will find plenty of occasions to develop and increase their book of business.  Following the 7 steps below will get financial advisors closer to that success.



As a 401(k) advisor, you have to determine your market and which 401(k) plans you will target. Will you target larger plans or plans that are smaller in asset size? If you are a registered investment advisor, you will also have to determine what your fiduciary role will be, will you be a co-fiduciary, or a type of ERISA fiduciary? If you are a broker, be mindful of rules the Department of Labor implements that may define you as a fiduciary. Acting as a fiduciary allows 401(k) advisors to separate themselves from the crowded financial advisor competition. The fiduciary responsibility also helps to set trust by making it clear that all recommendations made are based solely on the clients’ best interest.

To understand Fiduciary responsibilities better, you can read the articles below.


  1. KNOW THE 401(k) BUSINESS:

There is an awful lot to learn for those that focus on retirement plans. The industry is always evolving, and anyone from novice to expert needs to dedicate time in order to keep their skills, and knowledge base, sharp. Get in-depth fiduciary training and education as well as investment analysis and consulting expertise. It’s most likely that financial advisors working in this specialized area will be deemed a plan fiduciary. They need to understand how to both assist plan sponsors in mitigating their fiduciary liabilities, as well as their own. There are a number of resources for this type of education. The National Association of Plan Advisors, part of the American Retirement Association, offers credentialed programs for the Certified Plan Fiduciary Advisor (CPFA) or Qualified Plan Financial Consultant (QPFC).

Having a working knowledge of the Employee Retirement Income Security Act (ERISA) of 1974 is pertinent. Learning the act’s rules and regulations is the main differentiator between wealth management and retirement plan advising. It’s almost like getting a quasi-law degree and advisors must be prepared to invest time acquiring this specialized kind of knowledge. There are modules on retirement plans included in the Certified Financial Planner (CFP) Designation, as well as online resources provided by the Society of Certified Retirement Plan Financial Advisors.

However, advisors don’t need to be ERISA experts. They can partner with record-keeping firms or independent third-party administrators (TPAs) who can provide that expertise. Advisors do need to have somewhat of a technical understanding of the inner workings of 401(k) plans, though. For example, knowing plan design and the functions of different vendors such as record keepers and TPAs to be able to hire and monitor experts.


For 401(k) advisors with limited retirement plan expertise, to look smart on 401(k) plans, surround yourself with smart 401(k) people that already have the certifications and knowledge you need. Being a financial advisor is difficult enough, so you aren’t expected to become retirement plan experts. However, it is important to have enough knowledge to know when to bring in the experts so that your clients are not at a disadvantage. As a financial advisor, you need to augment your services and show why your services have a value compared to the competition and the best way to do it is to rely on retirement plan consultants and ERISA attorneys for advice, consulting, and knowledge. It doesn’t make you look bad to bring in another subject matter expert. You are the relationship manager, the “head coach’; and you have the power to influence the client to move one way or another because of your relationships. Also, remember to avoid the producing TPA. Producing TPAs are firms that also have an advisory business. While people can argue about the value of producing TPAs, you have to realize that since they are in the 401(k) advisory business, they are also your competition.



Make it easier for other business professionals in your circles of influence to understand the 401(k) business. Partner with, and educate, independent payroll providers, property and casualty agents, auditing and CPA firms. Teach them about the state-of-the-art options in plan design, and tax benefits of retirement plans at both the corporate and employee level. Many of these people are very outdated in their knowledge level, which creates big referral opportunities. Getting close to those that know key decision makers in the 401k advisor hiring process makes it easier to get introduced to the right people in order to spend the right amount of time in closing and on-boarding new business.



Once you’ve solved a complicated situation for one client, look to apply the solution to other clients. If one client had an issue, very often so do others and often don’t know it. It’s exactly how niche markets are developed and can lead to a thriving practice.

Certain types of businesses can have similar objectives for their 401(k) plans, and thus similar plan designs will work best for them. For example, medical specialist practices that have a handful of very highly-compensated doctors, as well as a handful of lower-compensated staff, are usually interested in methods to maximize the amount of money the doctors can contribute to a plan. A specific plan design, one that combines a 401k profit sharing plan with a cash balance defined benefit plan, for example, is a good way to do it. Advisors who specialize in this approach gain credibility and can win business, and referrals, from firms that are similar.



The most valuable form of marketing is word-of-mouth. Many great leads can come from an advisor’s existing client base, even if the clients are not in charge of a company retirement plan. When wealth management clients are familiar with 401(k) services offered, they can provide referrals year after year. A way to ensure your client base is knowledgeable enough to refer is to provide educational platforms and experiences for clients and prospective clients that allow them to experience the level of expertise and understanding required for proper retirement strategy including extenuating industry circumstances.

However, ensure to qualify a referral and limit wasted time with the wrong person that has no influence or authority to make a decision on a 401(k) plan. Get in front of the right person and bring in the right resources to close. You have to make a conscious effort to distinguish between wealth management and retirement planning when speaking with a prospect and ensure the right questions are being asked. Here are some good qualifying and discovery questions to ask (link to the qualifying and discovery questions).You also need to know when to lean on a TPA that can come in and put a proposal together for a group-level conversation and help close the business.


Use your strengths as the relationship specialist to your advantage. Share informative content with your client and prospect database. Use social media, emails and blogs, if your firm allows them, to share content that will show your expertise. You can write, use videos or podcasts to get your message across. Creating this type of content is great for branding and overall business development and the most cost effective tools you can use. Developing original content can be time consuming and maybe you don’t yet have the expertise to do it. Your firm may have access to pre-approved third-party content that you can use to show you are thinking of ways to help your prospects. Distributing and sharing such material as your own helps to ensure you are top-of-mind when the opportunity arises. There is no shortage of available information, but sharing information from experts you know you can lean on to close a sale shows your client that you have a network of quality people that can ensure a quality plan design based on their needs. The EJReynolds blog regularly produces quality content geared to keeping plan sponsors informed as well as helping advisors keep their clients knowledgeable.

Building any type of business isn’t easy. If you are dedicated to your clients and dedicated to the role of a 401(k) retirement plan advisor, you will succeed as long as you show a value to the service you provide. Although the sales process is longer (these plans do not close overnight), they tend to be sticky assets that will help you retain assets under management with additional sales opportunities. With so many changes to the retirement plan marketplace which can have plan sponsors reconsider their current plan providers, it may be the opportunity you need to exploit and build a 401(k) advisory business.

Fidelity Bonds for Your Retirement Plan

Under the Department of Labor (DOL) regulations, your retirement plan will need to maintain an ERISA Fidelity Bond. A fidelity bond protects the assets in the plan from misuse or misappropriation by the plan fiduciaries. Plan fiduciaries include the plan trustees and any person who has control over the management of the plan and its assets.

Required ERISA Fidelity Bond Amount

At the very least, the bond must be equal to 10% of the value of the total plan assets, with a minimum bond value of $1,000 and a maximum bond value of $500,000. For the first year, the bond amount will be based on the estimated amount of assets that will be handled by the plan for the year.

If you have non-qualifying assets more than 5% of the total plan assets, additional requirements apply. Non-qualifying assets are those assets not readily tradable on a recognized exchange. These may include limited partnerships, artwork, collectibles, mortgages, real estate, securities of closely-held companies and other assets held outside of regulated institutions such as a bank; an insurance company; a registered broker-dealer or other organization authorized to act as custodian for retirement accounts. Non-qualifying assets require additional bond coverage equal to 100% of these assets or could subject a plan to obtain a full-scope audit, where an independent CPA physically confirms the existence of the assets at the start and end of each Plan Year.

Why do I need an Erisa Fidelity Bond?

There are serious consequences for not purchasing and maintaining a sufficient ERISA fidelity bond. Not having this required coverage can be a red flag to the Department of Labor that they need to take a closer look at the plan. You are not only at risk for a DOL audit, but there are citations associated with not having this required coverage.

How do I obtain an Erisa Fidelity Bond?

As a convenience to you, EJReynolds has partnered with Colonial Surety Company, a national online insurance company that is U.S. Treasury listed and licensed in all states and territories. As experts in all aspects of ERISA regulations, Colonial Surety Company will ensure that you are properly bonded and that your bond is renewed prior to expiration so that your plan remains in compliance.

You can easily obtain an ERISA Fidelity Bond for your plan at:


Or, contact EJReynold and we’ll connect you with one of our expert ERISA Bond partners.

Fiduciary checklist for hiring Service Providers

You reached a great milestone when your organization became competitive enough to offer your employees a qualified retirement plan under ERISA (Employee Retirement Income and Security Act of 1974).

However, success can bring new challenges. As the assets of your Plan grow, so can your fiduciary liability, exposing you to loss and litigation.

As a Plan Sponsor, you can mitigate your risk by hiring service providers who agree to assume or share fiduciary liability. ERISA specifically describes the duties of Plan Administrator and Investment Advisors

in sections 3(16), 3(21) and 3(38) that can be outsourced to help you avoid risk and non-compliance with federal regulations. (See Types of ERISA Fiduciaries).

Here is a checklist of some questions to ask yourself in deciding if the time is right for you to hire service providers, and a list of some areas to address with a potential provider.

Plan Design

Plan design is an important part of any plan. A solid plan design and attention to the execution of these features will help plan sponsors maximize the benefit of their plan for themselves and their employees.

• Has it been more than 18 months since you reviewed your Plan Document?

• Are you certain you have maximized benefits for owners and key employees?

• Does your Plan allow participants to make after-tax (Roth) contributions to their accounts?

Management, Administration, and Fees

The management, administration, and fees related to the operation of any retirement plan are important

factors when choosing a service provider. As mentioned previously paying “reasonable” fees and expenses

while ensuring that the management and administration of your retirement plan runs smoothly is a balance

that each fiduciary must meet (see Fiduciary Responsibilities for Benefit Plans under ERISA).

• Were you made aware of new plan design options on a timely basis?

• Does the administration of your retirement plan take too much of your time?

• Do you offer self-service features to help participants manage their own retirement accounts?

Participant Education and Retirement Resources

Ensuring that your participants have the resources available to make informed decisions and are kept up to date on the issues affecting their retirement plan helps plan sponsors motivate employees in making sound retirement decisions.

• Do you maintain a formal education program?

• Do you have regularly scheduled enrollment and education meetings?

• Are you happy with the percentage of employees participating in your retirement plan?

Investment Selection and Monitoring

The selection of investments in your retirement plan is as important as the design of your plan. Outsourcing these services to a 3(21) or 3(38) fiduciary can help limit the liability plan sponsors face when choosing and monitoring the investments (see Types of ERISA Fiduciaries).

• Has your investment policy been reviewed and followed in the last 12 months?

• Do you have a documented rigorous investment selection and review process?

• Does your plan offer all the appropriate core investment categories?

ERISA Compliance and Fiduciary Responsibility

Understanding your role as a fiduciary of the plan is important in meeting the high standard of conduct defined under ERISA. To see if you are a fiduciary of the plan, your responsibility as a fiduciary, or how to mitigate your liability as a fiduciary read our recent articles: Are you a Fiduciary?, Fiduciary Responsibilities

for Benefit Plans under ERISA , and Types of ERISA Fiduciaries.

• Are you provided excellent guidance, education and support in understanding your fiduciary responsibilities?

• Do you have a fiduciary assurance feature related to the suitability of the investment monitoring process and fund lineup?

• Do you have all the tools and resources needed to help discharge you of your fiduciary responsibilities?

Download EJReynolds’ 401(k) Compliance Review to assess how well your 401(k) Plan is operating up to today’s standards.

EJReynolds, along with your advisor, can assist you in reviewing and defining you plan objectives, help you be more prescriptive with your investment options, and more easily communicate with employees who want to understand how to achieve their own retirement income goals.

Types of ERISA Fiduciaries

Under the Employee Retirement Income Security Act of 1974 (ERISA), there are several named classes of Fiduciaries, first and foremost of which is the Plan Sponsor. All qualified retirement plans have at least one named Plan Sponsor. The Plan Sponsor adopts the plan, and only employees (or beneficiaries thereof) of the adopting Plan Sponsor (or sponsors) may participate in and benefit from the plan. Since many Plan Sponsors of qualified retirement plans like to limit their fiduciary risk when it comes to the investment and disbursement of Plan Assets, it is possible for Plan Sponsors to mitigate their fiduciary liability by naming specific entities or individuals as fiduciaries. This article takes a look at determining who is a Plan Administrator, at investment advisors as fiduciaries, and the benefits of naming specific parties as certain types of named fiduciaries.

Plan Administrator under ERISA 3(16)

The Plan Administrator is responsible for the day to day duties of the plan, including determination and transmittal of contributions; distribution and loan review, approval and processing; annual compliance testing and the preparation of Form 5500 and related schedules. A Plan Sponsor can certainly hire outside service providers to handle most of these tasks, but unless the service provider specifically accepts Fiduciary status under ERISA Section 3(16), the Plan Sponsor or other specifically named parties are still considered the Plan Administrator, with all of the related Fiduciary Liability. To determine who is a Plan Administrator under 3(16), first review the Plan’s document. The Plan Administrator will be the individual named in the document. If the document does not name an individual, then the Plan Sponsor is the Plan Administrator. In the case where there are multiple employers, then the association, committee, joint board or trustees or other similar group of representatives of the parties who establish and maintain the plan may be named Plan Administrator. Some service providers are beginning to offer these services, for a fee, specifically accepting the title of 3(16) Plan Administrator.

Investment Advisors as Fiduciaries

A qualified plan financial adviser (or investment advisor) is a term for professionals who sell, advise, market or support qualified retirement plans. According to the U.S. Financial Industry Regulatory Authority (FINRA), terms such as financial adviser and investment advisor are general terms or job titles used by investment professionals and do not denote any specific designations.

ERISA 3(21) Fiduciaries

An investment advisor may be appointed as a fiduciary under 3(21) of ERISA directly by the Plan Sponsor. Persons can be deemed a 3(21) Fiduciary to the extent that they meet the following criteria; if they:
• Exercise discretionary authority or control with respect to the management
of the plan and the disposition of plan assets
• Render investment advice for a fee or any other direct or indirect
compensation; or
• Have any discretionary authority or responsibility over the administration of
the Plan

Fiduciaries accepting 3(21) responsibility share that responsibility with the Plan Sponsor and Plan Administrator; however the Plan Sponsor retains the ultimate responsibility and must monitor the performance of the 3(21) fiduciary. For instance, an investment advisor accepting ERISA 3(21) responsibilities may recommend a potential menu of investment options for the plan, but it is up to the Plan Sponsor to accept or reject those investment options, and to ensure that the investment policy is enforced.

ERISA 3(38) Fiduciaries

A fiduciary who falls under 3(38) of ERISA must be a registered investment advisor, bank, or insurance company. This type of fiduciary has all of the responsibilities of a 3(21) fiduciary, however they must agree in writing to assume the liability of selecting and monitoring the investments of the Plan. A 3(38) fiduciary has full discretion for selecting and monitoring plan investments and must make judicious decisions when making their investment choices. This type of fiduciary assumes the legal responsibility and liability of investment decisions. Bringing forward our previous example, the investment advisor accepting ERISA 3(38) responsibilities may recommend a potential menu of investment options for the plan, however neither the Plan Administrator nor the Plan Sponsor would have a say in the ultimate investment of the funds.

Benefits of naming a Fiduciary

From investments to the day to day management of the plan, it is not always possible for a Plan Sponsor be an expert in all aspects of a qualified plan. Hiring experts to help with these important and sometimes confusing requirements is not only prudent but may help limit the overall liability a Plan Sponsor is exposed to. For smaller plans, however, it may cost prohibitive to appoint an outside fiduciary. As the assets of the plan grows, so does the potential fiduciary liability and therefore the potential need for a named outside fiduciary. Ultimately, it is up to the Plan Sponsor to evaluate their own need and determine the scope of such an undertaking. More importantly, the Plan Sponsor also has the responsibility to monitor the fiduciary, as it would any other service provider, and make prudent decisions in selecting a 3(16), 3(21) or 3(38) fiduciary. The act of hiring such a fiduciary is itself a fiduciary act, so there is no way to eliminate all fiduciary liability. By making sensible, well documented decisions, and monitoring the results of the decisions, a Plan Sponsor can best defend themselves against any potential future litigation. The Sponsor must also take steps to ensure that the services received are commensurate with the cost of those services. There is no requirement under ERISA that any plan costs must be the cheapest around, only reasonable.

Meeting your fiduciary obligations under ERISA can be nuanced and not always obvious. You may also want to read our blogs in our fiduciary series, Are You a Fiduciary? and Fiduciary Responsibilities for Benefit Plans under ERISA.

If you have questions about your particular responsibilities or risk, feel free to contact us.

Fiduciary responsbilities for Retirement Plans under ERISA

Qualified retirement plans can be rewarding and beneficial for both employees and employers. However, plan sponsors, administrators and officials who have discretion over a plan must take care to meet the high standards of conduct for fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA).

Non-compliance with ERISA can expose benefit plan sponsors to serious risk and litigation. In some cases, individuals who play a fiduciary role can be held personally responsible for losses. It is especially helpful to be familiar with ERISA if your organization is a small business or non-profit with limited resources for plan administration.

Here is a basic overview of responsibilities and some tips for limiting fiduciary liability under ERISA.

Four key elements of a Retirement Plan

A “qualified retirement plan” is one that meets the requirements of ERISA and the Internal Revenue Code (IRC). Core elements of a retirement plan include:
• A written plan that describes benefit structure and guides day-to-day
• A trust account that holds the plan’s assets.
• A record keeping system to track the flow of monies to and from the plan.
• Reports that furnish mandatory disclosures to plan participants, beneficiaries
and government.

Who will manage your Retirement Benefits Plan?

Options for managing your retirement plan include:
• Hiring an outside professional (“third-party service provider”).
• Forming an internal administrative committee.
• Assigning management to Human Resources if applicable.
• A combination of the above.

Six important rules for Fiduciaries of Retirement Plans

• Act solely in the interests of the plan participants and exclusively for the
purpose of providing benefits.
• Act “prudently” and document decision making.
• Follow the terms of your plan (except where it conflicts with ERISA) and keep
it current.
• Diversify investments to minimize risk of loss.
• Pay only “reasonable” expenses and fees.
• Avoid “prohibited” transactions.

The importance of being prudent

Acting “prudently” is a central responsibility of fiduciaries. The “prudent man rule” in ERISA requires fiduciaries to carry out their duties with the same “care, skill, prudence and diligence” as would a person who is familiar with the subject and has the capacity to understand the issues would act in a similar enterprise with similar aims. Plan sponsors are expected to monitor their plans and have or obtain the expertise needed to meet fiduciary obligations.

Document your process

Plan sponsors, administrators and fiduciaries should document their decision making to demonstrate prudence. For example, if you are selecting a third-party provider, comparing potential providers by asking the same questions and providing the same requirements to each will support your final selection.

Reduce fiduciary liability

Other ways to limit your fiduciary liability include:
• Participant-directed plans like 401(k) and profit sharing plans.
• Automatic enrollments in default investments.
• Hiring third-party professionals who assume liability for their functions.
• Fidelity bonds on fiduciaries handling plan funds or property.
• Periodic review of plan documents, providers and operations.
• Avoiding conflict of interest and prohibited transactions.

Avoid “prohibited” transactions

Fiduciaries are prohibited from making certain transactions with “parties in interest” — those persons who are in a position to exert an improper influence over the plan, including the employer, the union, plan fiduciaries, plan service providers, officers, owners defined by statute, and relatives of parties in interest. Prohibited transactions would include sales, exchanges, leases, loans, extension of credit, or furnishing of goods, services or facilities.


The Labor Department grants a number of exemptions for some transactions that would fall under the “prohibited” category, but are deemed necessary and helpful in protecting the plan. Examples of allowable transactions include:
• Hiring a service provider for plan operations.
• Hiring a fiduciary adviser to give investment advice to participants in self-
directed accounts.
• Making loans to plan participants.

Conflicts of interest

Fiduciaries must not use the plan’s assets in their own interest, or accept money or any other consideration for their personal account from any party that is doing business with the plan.


The size of your benefits plan also impacts your government obligations. For example, ERISA requires an annual audit of plans with more than 100 eligible participants.

Deadlines for depositing contributions

If participants contribute to the plan through salary reductions, employers have a fiduciary responsibility to deposit the funds into the plan as soon as possible. Plans with less than 100 participants should deposit contributions no later than the 7th business day following the date of withholding. The rules for larger plans are not quite as clear. The regulations suggest no later than the 15th business day of the month that follows payday, however the Department of Labor has informally indicated that the small plan rules (within 7 days) should be the standard for all plans.

Additional information

We hope you have found this general overview helpful. ERISA regulations can be complex and each plan and situation is different. Please seek expert consultation for specific concerns and questions.

If you have a question about your fiduciary risks and responsibilities, feel free to contact us.

Are you a Fiduciary?

Fiduciaries of qualified retirement plans are held to the highest of federal standards. Fiduciary violations under the Employee Retirement Income Security Act (ERISA) of 1974 can expose you and your employer to risk and litigation. In some circumstances, fiduciaries can be held personally responsible for losses and restitution.

Not all fiduciaries are identified by title. Furthermore, some individuals may play a fiduciary role in some of their functions but not other functions. So how might you know if your position places you in a fiduciary role, or if your actions are subject to ERISA’s fiduciary standards?

There are innumerable journal articles, books and court cases that parse the question of who is held accountable for fiduciary conduct regarding benefit plans under ERISA. Here are some commonly held distinctions between a plan fiduciary and a non-fiduciary.

Functions Tell More than Titles

Fiduciary status is based on functions performed, not just titles. Under ERISA, the litmus test is whether you exercise discretionary authority in administering and managing a plan or in controlling the plan’s assets. You will be viewed as a fiduciary to the extent of your authority, control or discretion.

Fiduciaries Named in the Plan Document

Written benefit plans must name at least one official Fiduciary, by name or by office, or through a process described in the plan, as having control over the operation of the plan. The named Fiduciary can include one or more individuals; as well as entities such as an administrative committee or the company’s board of directors. Plan fiduciaries may typically include:

  • The Trustee
  • Persons exercising discretion in the administration of the plan
  • Members of a plan’s administrative committee (if the committee exists)
  • Persons who select committee officials
  • Investment advisors

Professionals and Fiduciary Responsibility

Professionals providing services are generally not considered fiduciaries when they are acting solely in their professional capacities. Professionals who commonly provide services include:

  • Attorneys
  • Accountants
  • Actuaries
  • Consultants

However, to the degree that a professional exercises authority or control over a plan, he or she can be liable for fiduciary actions. For example, a professional who is given compensation to provide investment advice for the plan trustees and participants would be performing a fiduciary function.

Business Decisions vs. Fiduciary Decisions

Business decisions are not governed by ERISA. Since employers are not required to provide retirement plans for employees, ERISA views the decision to establish a qualified plan as a business decision because the employer is acting on behalf of the business.

Other business decisions can include the determination of:

  • The contribution formula
  • Certain features to be included, such as loans or hardship distributions
  • Whether or not to adopt a discretionary plan amendment
  • Whether or not to terminate a plan

However, once employers (or those hired by them) act to implement a qualified plan, they are acting on behalf of the plan, and their decisions in carrying out the plan are considered fiduciary decisions, subject to ERISA regulations governing fiduciary responsibilities. They have a fiduciary duty to ensure the plan is operated in and maintains proper compliance.

Specific Situations

Given the nuances of fiduciary codes, the Department of Labor, which enforces ERISA laws, has demonstrated over the years that final determination of fiduciary liability and responsibility rests on the intersection of the specific circumstances of each situation and the prevailing regulations. If you have a specific question regarding fiduciary roles, naming a fiduciary, or the delegation of fiduciary duties, it is best to seek professional expertise.

If you feel you are facing a change in responsibilities or have a question about your fiduciary roles and risks, feel free to contact us.