Sample Erisa 3(38) Agreement

A Sample ERISA 3(38) Agreement: Understanding Its Importance for Plan Sponsors

As a plan sponsor, you have a lot on your plate. You have to ensure that your employees receive quality benefits that comply with regulatory mandates. And in this complex arena, understanding the role of a 3(38) fiduciary can be overwhelming. Fortunately, by partnering with an experienced investment advisor, you can safeguard your fiduciary duties and provide your employees with the peace of mind they deserve. In this article, we’ll discuss a sample ERISA 3(38) agreement and why it’s essential for plan sponsors.

What is a 3(38) fiduciary?

The Employee Retirement Income Security Act (ERISA) outlines different roles for retirement plan fiduciaries. A 3(38) fiduciary is an investment manager who takes full responsibility for selecting, managing, and monitoring the plan’s investment options. In other words, the 3(38) fiduciary assumes the legal responsibility for the investment options offered to plan participants. This means that if the investment options underperform or are poorly managed, the fiduciary is responsible for any losses.

Why is a 3(38) fiduciary important for plan sponsors?

While a 3(38) fiduciary does not guarantee investment success, it does provide several benefits for plan sponsors. Here are three reasons why a 3(38) fiduciary is a valuable asset for your retirement plan:

1. Mitigate Legal Risks

As a plan sponsor, you have a fiduciary duty to act in the best interest of your plan participants. Under ERISA, you are liable for any investment losses resulting from a breach of that duty. By engaging a 3(38) investment manager, you transfer the legal responsibility for investment selection and monitoring to the fiduciary.

2. Increase Participant Satisfaction

A well-managed retirement plan can boost employee morale and satisfaction. By delegating investment decisions to a 3(38) fiduciary, you can offer your plan participants a diverse range of investment options that have been carefully vetted and managed.

3. Streamline Plan Administration

By partnering with a 3(38) fiduciary, you can streamline plan administration and reduce your workload. Your fiduciary will be responsible for selecting and monitoring your plan’s investment options, freeing up your time to focus on other important administrative tasks.

Sample ERISA 3(38) Agreement

A well-drafted 3(38) agreement should clearly define the roles and responsibilities of the plan sponsor and the 3(38) investment manager. Here’s a sample ERISA 3(38) agreement template that you can use as a starting point:

1. Investment Manager Selection and Monitoring

The investment manager shall be responsible for selecting, managing, and monitoring the plan’s investment options. The plan sponsor shall have no liability for the performance of the selected investments.

2. Investment Policy Statement

The investment manager shall adhere to the plan’s investment policy statement. The plan sponsor shall ensure that the investment policy statement is up-to-date and reflects the plan’s objectives.

3. Reporting

The investment manager shall provide regular reports to the plan sponsor regarding the performance of the investment options. The plan sponsor shall review these reports and take appropriate action if necessary.

4. Compensation

The investment manager shall receive reasonable compensation for its services. The plan sponsor shall ensure that the compensation is reasonable and in compliance with regulatory requirements.

5. Termination of Agreement

Either party may terminate this agreement with written notice. Upon termination, the investment manager shall continue to manage the plan’s investments until a replacement investment manager is selected.

Conclusion

As a plan sponsor, you have a fiduciary duty to act in the best interest of your plan participants. By engaging a 3(38) investment manager, you can transfer the legal responsibility for investment selection and monitoring to the fiduciary. This not only mitigates your legal risks but also increases participant satisfaction and streamlines plan administration. By using the sample ERISA 3(38) agreement template, you can ensure that your 3(38) agreement clearly defines the roles and responsibilities of both parties.