IFA’s Benefits to Plan Sponsors:
Fiduciary Protection
The importance of minimizing plan costs is fundamentally important to enhancing
returns. This is why ERISA mandates that plan trustees benchmark fees for all aspects
of the plan. Mandates for benchmarking also apply to mutual fund performance and
fees relative to a peer group.
Given the substantial liability in combination with the knowledge and information
required to make informed choices, most plan sponsors enlist the help of an advisor.
The typical advisor will suggest which investments a plan should contain and may
provide participants education for making plan allocations. However, for a plan
sponsor, this is insufficient. Most advisors are compensated via 12b-1 fees. As
a result of this compensation scheme, advisors make sure their investment suggestions
are nothing more than suggestions, leaving the liability for the ultimate decisions,
and any negative outcomes, squarely on the shoulders of the plan sponsor. Most advisors
will not sign on as a fiduciary to act in the plan’s best interests because they
may be acting in their own best interests, instead.
The investment advice provisions of the recently enacted Pension Protection Act
of 2006 relieve employers of liability associated with providing participants such
advice as long as the advice is provided by a “fiduciary advisor” under an "eligible
investment advice arrangement." Facilitating this sort of arrangement is accomplished
only through a written agreement which sets forth the investment advisor as an ERISA
3(38)-defined “investment manager.” In so agreeing, the advisor becomes an ERISA
405(d)(1) defined “independent fiduciary.” This arrangement permits the plan fiduciaries
to delegate their personal responsibility for the selection and monitoring of a
plan’s menu of investment options to the advisor under ERISA section 3(38). The
plan fiduciaries retain the responsibility (and liability) for selecting, monitoring
and replacing (if necessary) the investment manager periodically to ensure that
the manager is handling the plan’s menu of investment options prudently.
IFA is an ERISA 3(38) investment fiduciary which provides extensive benefits to plan
sponsors and plan participants alike by:
- • Establishing the plan’s investment policy
- • Identifying risk-appropriate asset allocation models and implementing them through
index portfolios
- • Prudently selecting, monitoring, removing and replacing 401(k) plan investment
options
- • Establishing each plan participant’s individual Risk Capacity to educate and assist
in the selection of a risk- appropriate portfolio
- • Providing investment education materials to advance participant knowledge of investing
- • Assembling and quarterbacking the 401(k) team including custodian, recordkeeper,
and third party administrator and overseeing the administration of the plan
By assuming these important fiduciary obligations, IFA significantly reduces the
legwork and burden that fall upon the plan sponsor and substantially simplifies
the duties regarding the plan. IFA's goal is that 401(k) plans will be prudently
executed from both administrative and investment perspectives, and that participants
will benefit from investments that will set them on their best course for retirement.