Some service providers to ERISA qualified retirement plans tout a "co-fiduciary" status or promote a warranty for their service. Many ERISA plan sponsors accept these claims to mean that use of such a provider's services or investment products eliminates all of a sponsor's fiduciary liability. According to ERISA's standard, this is simply not true.

The term "co-fiduciary" has emerged within the retirement plan arena, and with it confusion over its effect on the persons who possess personal liability under the Employee Retirement Income Security Act ("ERISA".) The desire to avoid, or at least lessen ERISA's liability is a natural inclination for any human. Individuals who occupy such a position, but who may not have received training or education on fiduciary duty, can, however, be easily led into a trap.

For example, some service providers to ERISA qualified retirement plans tout a "co-fiduciary" status or promote a warranty for their service. Many ERISA plan sponsors accept these claims to mean that use of such a provider's services or investment products eliminates all of a sponsor's fiduciary liability. According to ERISA's standard, this is simply not true.

Unfortunately, the common view of the term "co-fiduciary" among plan sponsors, especially untrained trustees and administrators, does not come close to its true meaning. Here is what you should know.

When the authors of ERISA published the duties of the persons who are accountable for the safe operation of retirement plans, they did not define a job description titled co-fiduciary. In other words, the limit of a person's personal liability is not subdivided by ERISA into major and minor exposures. Fiduciary is the only job title that ERISA recognizes.

Furthermore, ERISA assigns full personal liability to persons who appoint fiduciaries. Thus, ERISA provides no escape from full liability for persons who are named in plan documents, service agreements, and federal filings such as Form 5500s no matter how many co-fiduciaries exist.

What, then, is a Co-Fiduciary?

Since any person or entity that performs a fiduciary function has been deemed by the Department of Labor and the courts to be a fiduciary, what is a co-fiduciary? The answer to this question comes in two parts.

Part One
If a plan sponsor hires a firm to provide investment services to its retirement plan, then by ERISA's definition such a firm is usually a fiduciary. It makes no difference if it refuses to acknowledge its standing under ERISA in writing. If it walks like a fiduciary, talks like a fiduciary, and acts like a fiduciary, then it is a fiduciary. But its duty, and attendant risk, is limited to whether the activities it actually performs are fiduciary in nature. Under no circumstances, however, does such a fiduciary bear the scope of the extensive risk born by a plan's sponsor.

Incidentally, do not be misled by investment firms that claim to help you with your plan's governance. Turning to a service provider like an investment advisor, money manager, or third party administrator for governance help would be like buying chicken wire for the hen house from the fox! ERISA contains guidelines for investment fiduciary governance. FiduciaryPLUS™ is a program that contains them. Contact Jan Salzar at 800-440-3457 or at jsalzar@rolandcriss.com for information on how to obtain yours.

Part Two
The vast majority of investment providers' contracts severely restrict the scope of their liability. In some cases, service providers will agree to expand the limits of their duty in order to acknowledge a broader role. The section of a service agreement that acknowledges broadened liability is sometimes labeled the Co-Fiduciary Section, which is how the term co-fiduciary emerged. It is not, however, an ERISA term.

Some investment vendors and brokers misuse the term co-fiduciary, often unknowingly. In such cases, they wrongly imply, or even outright claim, that they fully assume a plan sponsor's fiduciary liability. For many plan sponsors, this is a setup for a nasty surprise.

If in doubt, get help from Roland|Criss. We are an accredited and unbiased expert in the requirements of ERISA's standard for investment fiduciaries. We can help you find out where you stand, cure any shortcomings against the standard, and join your team as an independent administrator with full fiduciary acknowledgment under ERISA Section 3(16). Contact Jan Salzar at 800-440-3457 for more information about our program that fully discharges your fiduciary duty or send her an e-mail at jsalzar@rolandcriss.com.

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