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Creating a Superior ERISA 3(38) Appointment Framework

Contributor Scott Simon provides a blueprint for the best way to legally protect a plan sponsor when appointing a 3(38).

There are myriad products in the marketplace that service providers to 401(k) plans--say, insurance companies--offer to plan sponsors. These products include so-called "fiduciary warranty" services, "indemnification and hold harmless" services, "fiduciary support" services, and "third-party fiduciary" services.

The marketing materials for these services claim that the insurance company itself will take on fiduciary responsibility pursuant to section 3(21) of the Employee Retirement Income Security Act of 1974, or ERISA. Other such services include the insurance company providing a 401(k) plan with a Registered Investment Advisor that will be an ERISA §3(38) investment manager--that is, one acting as a third-party fiduciary--to select, monitor, and (if necessary) replace the investment options on the investment menu of a 401(k) plan. I've never seen a case where an insurance company (or, for that matter, a brokerage firm or mutual fund company) itself provides 3(38) services; that's why, in previous columns, I've referred to these entities in such situations as "scaredy cats."