Fiduciary Libility in ERISA Covered 403b

[austin3515]

I have a client telling me that they have been assured by a vendor that even though ALL of the vendor's funds are available (hundreds of them) the employer does not have any fiduciary liability related to these funds, because it is not up to the employer which funds are offered. So even though fund ABC might be a dog, the employer/fiduciary does NOT have the ability to pull the fund.

Are there any articles on point about this? I tried to explain that it is a fiduciary train wreck, but need something to back me up.

[MoJo]

I have a client telling me that they have been assured by a vendor that even though ALL of the vendor's funds are available (hundreds of them) the employer does not have any fiduciary liability related to these funds, because it is not up to the employer which funds are offered. So even though fund ABC might be a dog, the employer/fiduciary does NOT have the ability to pull the fund.

Are there any articles on point about this? I tried to explain that it is a fiduciary train wreck, but need something to back me up.

Oh boy. Can't help you with any articles, but this is ERISA fiduciary 101 - an employer is (almost) ALWAYS liable for the selection of ______________ (fill in the blank) and in this case, the blank can be filled in with "investments" or "vendor" or "advisor" or any number of others....

[jpod]

It may not be a train wreck, but you are absolutely correct that if it is a Title I plan the employer (or somebody) has a fiduciary responsibility to select and oversee the investment choices. Good luck finding an article that states this explicitly with respect to a 403(b) plan, but maybe that was pointed out somewhere during the 2007-2009 period when people were amending 403(b) plans to comply with the IRS regs.

[Peter Gulia]

austin3515, here's one way to illustrate that a vendor's statement isn't something that your client can rely on (even if the statement might happen to be correct). Suggest to your client that it ask:

'Vendor, if you're so confident that the employer is not responsible for your selection of investment alternatives, why don't you issue me an indemnity contract that commits you to pay the plan's losses that result from the employer's reliance on that statement?'

(This kind of rhetorical question works especially well if the vendor is an insurance company, and it or its affiliate is licensed to do a liability insurance business.)

Even the weak variation of asking the vendor to make the doubtful statement as a representation and warranty in a service agreement usually gets a simple No (once the question moves past the sales guys to an executive who has authority to commit the vendor's money).