The Secret Your 401(k) Vendors Don't Want You to Learn: "Co-Fiduciary" Doesn't Mean Much

Written by Smart Investor | 24 May 2010

As a 401(k) plan sponsor, you want to do the right thing for your plan participants. You like the idea of fulfilling your fiduciary responsibilities. You may figure you've got your bases covered because your vendors call themselves "co-fiduciaries."

This is a big mistake.

Vendors often talk up their roles as “co-fiduciaries.” However, in reality, the company sponsoring the retirement plan—not the co-fiduciaries—still bears full responsibility and liability.

Unlike a fiduciary, a co-fiduciary has to act only when another fiduciary breaches their duty or when they are required to act by their service agreement. Also, contracts often favor the vendor at the plan sponsor’s expense. Service agreements often limit co-fiduciaries' actual responsibilities by incorporating technical legal language that may be difficult for non-lawyers to understand.

An independent fiduciary can help you to assess and monitor your 401(k) plan providers, in addition to relieving you of some of your fiduciary responsibility; particularly with your plan’s investment options and results.

The secret key to understanding whether a vendor or “advisor” is truly a fiduciary is to ascertain that he or she will (1) manage and make investment decisions, (2) be accountable to you and (3) provide you with written acknowledgement that he or she is serving as an independent ERISA 3(38) investment manager fiduciary.

If you hear phrases like “we’ll recommend, suggest and help you make decisions regarding the investments with your retirement plan”—you’re most likely dealing with someone who will not or cannot serve as a fiduciary. Check the “fine print” in his or her service agreement and the so-called “fiduciary warranties” – and you’ll see language that states he or she is not serving as a fiduciary, but merely as an advisor who makes recommendations and suggestions to help you meet your fiduciary responsibilities.

The bottom line: if your “co-fiduciary” or other advisor won’t put it in writing that they’re serving as your ERISA 3(38) investment manager fiduciary – they’re not and won’t provide you with the personal liability protection ERISA allows.

Do you have questions? Please call me at 916-435-2100 or email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . I'd be happy to talk with you about any of your fiduciary or retirement plan concerns.

Investment advice offered through Smart Investor, a Registered Investment Adviser.