Triggering 3(21) fiduciary responsibility

We're a TPA/recordkeeper who works almost completely in conjunction with 3(38) advisory firms to provide plans. As it stands we don't do anything in regards to investment lineups on the plans, that's chosen exclusively by whatever advisor is the 3(38) on that plan. We're toying with the idea of creating a very stripped-down, basic 401(k) plan to sell as a "plan in a box" of sorts for very small companies unable to afford our standard tier. One of the issues is that such a plan would require an investment lineup, and having an advisor with a bps fee on the plan doesn't seem ideal for this structure.

We absolutely don't want to take on 3(21) / 3(38) liability, which is why we've never thought about this before. However, I've heard recently from some sources that 3(21) responsibility is triggered only if it's plan-specific advice given to a sponsor. Supposedly, I've heard that some record keepers are able to essentially say "here's our standardized fund line-up, you as a sponsor can either adopt it or choose your own funds to use" and in doing so, the plan sponsor remains the fiduciary for 3(21)/3(38) purposes.

Anyone have any further insight on this?

1 hour ago, Mleech said:

Supposedly, I've heard that some record keepers are able to essentially say "here's our standardized fund line-up

This is true. Morning star does some 3(21) for plans. The sponsor would have to take an active role in changing the investments, reviewing the information sent from Morningstar and keeping up with it in general. Maybe the plan sponsor decides only to offer a target date series to participants..? 

BTW for small plans .40% fee to an advisor is a very small fee. The plan would 100% pay the RK and TPA more in fees than an advisor. 

This can be done.  Your company should put all the language it can in the service agreement stating the limits of its activities with regard to an ERISA plan and must ensure that it doesn’t do anything that goes past those limits. 

The service agreement, at a minimum, should state that the company does not provide specific investment recommendations to a plan on a regular, defined basis under a written agreement for compensation.  The service agreement should explicitly state the company is not acting as an investment advisor and is not providing investment recommendations. It should state that it only provides factual information or administrative services.  The company should carefully document its activities to show a lack of discretionary investment advice.

The company should merely provide “access” to investments.  It shouldn’t state something like this is the standardized slate we offer to plans…. They should likely frame this more as here is a slate of investments that we have seen ERISA plans utilize… it makes no recommendations regarding the appropriateness of an investment for an ERISA plan… tell the client to consult their own financial and investment advisors as to whether any investment is a prudent and proper investment for their plan…. All investment decisions, whether they are obtained through your company’s service agreement or through another provider, are the decisions of the plan sponsor.  Nothing in your communications should even allude to or be able to be interpreted that any determination has been made by your company as to whether the offered investments are appropriate for any ERISA plan (just relay the fact that ERISA plans utilize them).  The company can provide facts concerning the investments, prospectuses etc.  This means it can provide educational materials about investment options in general and concepts but it cannot communicate anything that even appears to be recommending particular funds.

Not advice, stream of thoughts here...

Consider that whether a person is a fiduciary because the person might have provided investment advice is a mixed question of law and fact a court decides.

A court need not consider any Labor or Treasury department interpretation of the statute. Yet, a court may consider any source, governmental or secondary. A court may consider anything an agency published, including a rule or other interpretation no longer in effect. A court must not defer to any agency interpretation; rather, the court interprets the statute.