Now that you know how to hire and monitor the trustee’s support-team of experts, known as service providers, there is still one more thing you need to do. You need to determine which of those service providers is your co-fiduciary and to what extent. You can be jointly liable for the action of the trust’s co-fiduciaries, so you need to know who they are and when they are acting as a fiduciary.
Who is a fiduciary? A fiduciary is someone who uses discretion in administering and managing a plan or who controls the plan’s assets to the extent of that discretion or control. ERISA §3(21) (A) provides that a person is a fiduciary with respect to a plan to the extent he or she:
- Exercises any discretionary authority or discretionary control with respect to management of the plan or exercises any authority or control with respect to the management or disposition of plan assets;
- Renders investment advice for a fee or other compensation, direct or indirect, with respect to any plan assets or has the authority or responsibility to do so; or
- Has any discretionary authority or discretionary responsibility in the administration of the plan.
In simple terms, a fiduciary is someone who manages or invests plan assets, provides investment advice, or administers the plan. Fiduciary status is based on the functions performed for the trust, not a title.
Trustees are always fiduciaries. In addition, the following are sometimes fiduciaries:
- Investment advisors are generally fiduciaries unless they have no discretion and merely carry out investment decisions made by others. However, mutual funds are not considered fiduciaries simply by reason of purchase of shares of the fund by the Pension Fund.
- Insurance companies which manage plan assets or which hold funds in a “separate account” likely will be deemed fiduciaries. Policies or contracts issued are plan assets, but the underlying assets may or may not be plan assets, depending on whether the policy or contract is a “guaranteed benefit policy” supported by the insurer’s general account and whether the insurer or the plan bears the investment risk.
- Insurance companies, third party administrators, or claims processors may be fiduciaries if they have discretionary authority to decide claims.
- Banks, attorneys, and actuaries often are not considered fiduciaries for merely acting in their traditional roles.
With regard to prohibited transactions, the trustee can be held liable for the breach of his/her co-fiduciary if:
- He participates knowingly in the act or omission of the co-fiduciary, knowing the act or omission is a breach;
- She enabled the co-fiduciary to commit the breach by her failure to fulfill her own fiduciary duty; or
- He knows about the breach and does not make reasonable efforts to remedy the breach.
As a practical matter, you also need to be certain the service provider is aware of its fiduciary duty as well as ensure the service provider has the fiduciary liability insurance coverage and/or bonding needed for its role as fiduciary.