Plan Sponsors Ask (2023)

Q: Our company is growing rapidly—and so is our retirement plan. We are interested in hiring a plan advisor. When it comes to providing fiduciary support, what can we expect?

A: From a plan sponsor perspective, the act of hiring a fiduciary advisor is a fiduciary act, and one the sponsor should conduct thoughtfully. Although fiduciary services vary by advisor firm, here are the types that plans commonly use:

An advisor acting as a 3(21) fiduciary provides investment guidance and recommendations to the plan sponsor, but the sponsor makes the ultimate decision as to whether to change the investment lineup. Because the sponsor has the final say, it also assumes the fiduciary responsibility for that decision (though it can document that the process included guidance from a professional advisor).

An advisor who acts as an investment manager 3(38) fiduciary also provides guidance and recommendations but makes the final decision on investments. This typically costs more and reduces the plan sponsor’s involvement. Hiring a 3(38) advisor entails a deeper level of fiduciary outsourcing and fiduciary protection; they have the discretionary authority to make, vet, and implement investment recommendations.

If a plan sponsor is not an investment expert, ERISA extends the ability for them to outsource that responsibility to an investment advisor. Under the arrangement, the plan sponsor remains a fiduciary in selecting and monitoring the advisor.

Q: As part of our efforts to attract and retain employees, our plan committee is working with our plan advisor to enhance our retirement plan. We are thinking of adding lifetime income solutions. Our chief financial officer is big on data—do you have any research to help us justify the effort?

A: Workers are anxious about the effects of a potential recession on their retirement planning, which may be driving greater interest in retirement income options. The 2022 Protected Retirement Income and Planning Report says only 48 percent of workers believe their retirement savings and other sources of income will last throughout their lifetime, down from 55 percent in 2021. In addition, 70 percent said they would be able to fund basic needs in retirement, whereas only 23 percent hope to be able to fund the basics. When workers were asked if they would be able to fund “wants” in retirement, 35 percent said they will be able fund them, whereas 49 percent hope to and 11 percent said “no chance.” To help further your case for adding lifetime income solutions, check out the report.