If I allow my stock broker, a large bank, or an insurance company to choose the plan investments, will I reduce my Fiduciary Liability?

Most brokerage firms, banks and insurance companies work very hard to minimize their fiduciary responsibilities.  This leaves you with the responsibility to make investment decisions.  They will often advise you, but few are willing to become an “Investment Manager” and manage your investments.  Do not confuse an investment advisor who provides advice with an investment manager who assumes fiduciary responsibility (see enclosed article).

If the provider takes on the co-fiduciary’s responsibility, the provider must take the responsibility of monitoring the funds, their managers and take the responsibility and liability to replace poorly performing investments and replace them with better investments.  To be truly objective, an Investment Manager should be completely independent of the provider and not profit from the selected funds.  Beneco has formed a relationship with an independent federally registered investment manager.  This federally registered investment manager has accepted the responsibility as the Investment Manager under ERISA § 3(38).  This requires that they:

(A) have the power to manage, acquire, or dispose of any plan asset; and are

(B) either registered as an investment adviser under the Investment Advisers Act of 1940; or  a bank, as defined in the Investment Advisers Act of 1940; or  an insurance company qualified to manage, acquire, or dispose of any asset of a plan under the laws of more than one State; and

(C) who has acknowledged in writing that they are a fiduciary of the plan.

As an “investment manager”, they have assumed liability and can be found liable as a fiduciary under ERISA for failure to manage the plan's assets in a prudent manner and for failure to observe its duty to diversify plan investments. This greatly minimizes the weight of the fiduciary responsibility that falls on your shoulders.  The Beneco plan is one of the few plans in which you, the employer, do not have responsibility to approve the plan investments.  The investment manager assumes 100% of that responsibility.  They understand this area and are prepared to be the “Prudent Experts”.

Fred Reish, one of the most prominent and respected ERISA attorneys in the nation and who holds seminars on this subject along with the DOL and other ERISA affiliated organizations, states that few plans in America provide an IPS and a third party independent investment manager with co-fiduciary responsibility and fund monitoring.  It is extremely rare or practically impossible to have an insurance company meet these standards as they pass on that responsibility to the employer and the trustee of the plan who is usually an officer and/or a stockholder of the company.

To hire your personal plan investment manager, depending on the size of your assets and the number of participants and frequency of monitoring can cost from 1% to 3 ½% of assets annually.