F
RED
R
EISH, ESQ.
November 6, 2014

This session explores whether TPAs should consider providing administrative fiduciary services and, if so, to what extent.
Let’s start with the law.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 1

ERISA §3(21)(A) . . . a person is a fiduciary with respect to a plan to the extent
. . .
(iii) he has any discretionary authority or discretionary responsibility in the administration of such plan .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 2

ERISA §3(16)(A) The term “administrator” means—
(i) the person specifically so designated by the terms of the instrument under which the plan is operated;
(ii) If an administrator is not so designated, the plan sponsor; . . .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 3

ERISA §405(c)(1):
(1) The instrument under which a plan is maintained may expressly provide for procedures . . .
(B) for named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities . . . . .
(2) . . . [if] pursuant to such procedure any fiduciary responsibility of a named fiduciary is allocated to any person
. . . then such named fiduciary shall not be liable for an act or omission of such person . . .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 4

D-1 Q: Is an attorney, accountant, actuary or consultant who renders legal, accounting, actuarial or consulting services to an employee benefit plan (other than an investment adviser to the plan) a fiduciary to the plan solely by virtue of the rendering of such services, . . ?
A. No . . . .
continued . . .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 5

Continued . . .
. . . However, while attorneys, accountants, actuaries and consultants performing their usual professional functions will ordinarily not be considered fiduciaries, if the factual situation in a particular case falls within one of the categories described in [ERISA section 3(21)(A)], such persons would be considered to be fiduciaries . . . .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 6

D-2 Q: Are persons who have no power to make any decisions as to plan policy , interpretations, practices or procedures, but who perform the following administrative functions for an employee benefit plan, within a framework of policies , interpretations, rules, practices and procedures made by other persons, fiduciaries with respect to the plan:
(1) Application of rules determining eligibility for participation or benefits;
(2) Calculation of services and compensation credits for benefits; continued . . .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 7

Continued . . .
(3) Preparation of employee communications material;
(4) Maintenance of participants' service and employment records;
(5) Preparation of reports required by government agencies;
(6) Calculation of benefits; continued . . .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 8

Continued . . .
A: No.
Only persons who perform one or more of the functions described in section 3(21)(A) of the Act with respect to an employee benefit plan are fiduciaries.
Therefore, a person who performs purely ministerial functions such as the types described above for an employee benefit plan within a framework of policies, interpretations, rules, practices and procedures made by other persons is not a fiduciary . . . .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 9

Non-fiduciary services:
• ordinary negligence: reasonable care.
Fiduciary services:
• prudent man rule: prudent process.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 10

404(a)(1): “Prudent Man Standard of Care.
. . . a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and--
. . . .
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 11

405(a): “Circumstances Giving Rise to Liability.
. . . a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan in the following circumstances:
(1) if he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach;
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 12

(2) if, by his failure to comply with section
404(a)(1) in the administration of his specific responsibilities which give rise to his status as a fiduciary, he has enabled such other fiduciary to commit a breach; or
(3) if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach.
”
• For example, the failure to deposit deferrals into the plan.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 13

The Internal Revenue Code does not impose duties directly on Fiduciary Plan Administrators. Instead, it’s provisions refer to “employers” or “plans” as being responsible for the required activities.
However, the IRC does treat Fiduciary Plan
Administrators as fiduciaries for purposes of the prohibited transaction rules in section 4975.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 14

ERISA sections that specifically assign duties to the
ERISA plan administrator:
• 101(i)(1): furnishing blackout notices.
• 103(a)(3)(A): engage qualified public accountant.
• 104(a)(1): file Form 5500 (Query regarding preparation —PTs and defaulted loans).
• 104(b): furnish SPDs and SMMs.
• 105(a)(1)(A): furnish pension benefit statements.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 15

 Determining eligibility
 Approving participant loans
 Approving hardship withdrawals
 Approving distributions
● severance
● retirement
● death
● disability
 Approving QDROs
 Interpret plan provisions
 Furnish 404a-5 participant disclosures
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 16

The selection, monitoring and possible removal and replacement of the:
• Recordkeeper
• Advisor
• TPA
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 17

Some TPAs believe they are already handling most of the
3(16) responsibilities. However:
 Oversight versus implementation
 Prudent process versus reasonable care
Considerations: Checklists and data.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 18

The fiduciary prohibited transaction rules are found in
ERISA section 406(b):
406(b)(1) prohibits a fiduciary from dealing with the assets of the plan in his own interest or for his own account.
406(b)(3) prohibits a fiduciary from receiving any consideration for his account from any party dealing with the plan in connection with a transaction involving assets of the plan.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 19

In the case of Healthcare Strategies, Inc. v. ING Life
Insurance and Annuity Company , the court considered whether the contractual right to substitute investment options in a plan menu caused a recordkeeper to have fiduciary status under subsection (A)(iii), even though it had not exercised that right. Under its contract with its recordkeeping clients, ING had the authority to change investments in separate accounts in which plans had invested.
Healthcare Strategies Inc., v. ING Life Insurance and Annuity Co.,
No. 11-00282-WGY (D. Conn. August 5, 2013).
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 20

While acknowledging that this could give it fiduciary status under subsection (A)(i), ING (referred to in the case as ILIAC) argued that it could be held liable for a breach of duty only to the extent it had actually exercised that authority.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 21

The district court concluded that:
Because subsection [(A)(iii)] endows fiduciary status on anyone who possesses discretionary authority in a plan’s administration, regardless of whether that authority is exercised,
ILIAC’s fiduciary role is not necessarily limited to the two instances in which it substituted mutual fund out of
401(k) plans.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 22

In a second case to consider the question, Golden Star,
Inc. v. Mass Mutual Life Insurance Co.
, the court noted that “the eligibility of service providers for fiduciary status under subsection (iii) is an undeveloped area of the law.
” continued . . .
Golden Star, Inc. v. Mass Mutual Life Ins. Co., CIV. 3:11-30235-
PBS, 2014 WL 2117511 (D. Mass. May 20, 2014).
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 23

Continued . . .
In this case, the plaintiffs argued that Mass Mutual’s receipt of revenue sharing on mutual funds held in separate accounts (referred to as SIA’s in the opinion) was a breach of fiduciary duty despite the fact that it had not exercised any discretionary authority to affect its compensation.
continued . . .
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 24

Continued . . .
Even though the court cast doubt on whether Mass
Mutual could be liable for a breach of fiduciary duty, it nevertheless concluded that Mass Mutual “is a functional fiduciary under subsections (i) and (iii) when
[it] determines its compensation package in the SIA’s….”
[Emphasis added.]
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 25

So, why should a TPA consider becoming a fiduciary plan administrator?
• Client satisfaction.
• Competitive pressures.
• Other?
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 26

 Agreement and extent of fiduciary duties.
 Policies and procedures.
 Compensation for fiduciary services.
 Insurance: errors and omissions, and fiduciary insurance.
 Bonding.
TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 27

TPA and Recordkeeper Considerations for 3(16) Fiduciary Status - November 6, 2014 28

,
ESQ.
1800 Century Park East, Suite 1500
Los Angeles, CA 90067
(310) 203-4047
(310) 229-1285 [fax]
Fred.Reish@DBR.com
www.linkedin.com/in/fredreish www.drinkerbiddle.com
F OLLOW F RED ON T WITTER @ FREDREISH
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