Condor Capital is capable of acting as your 401(k)’s co-fiduciary investment consultant (under ERISA code 3(21)) or as your 401(k)’s fiduciary investment manager (under ERISA code 3(38)). For more information on the similarities and differences among advisors and their duties to your 401(k) plan, please read the information detailed below.
What’s The Difference?
Non-Fiduciary Investment Consultant
Non-fiduciary investment consultants have no duty, other than a moral one, to put the interests of plan participants first. This type of investment consultant does not have to avoid a conflict of interest and is allowed to pursue his or her own financial self-interest, with respect to the plan.
Within the contract between a non-fiduciary investment consultant and a 401(k) plan sponsor, the consultant will not acknowledge any fiduciary responsibility under the plan. Therefore, consultants have no legal obligation to the plan participants, meaning he or she does not have to ensure that plan participants are receiving the best investment options at the best price.
ERISA 3(21) Fiduciary Investment Consultant / Co-Fiduciary
Within the contract between an ERISA 3(21) fiduciary investment consultant and a 401(k) plan fiduciary, the consultant has the choice of whether or not to acknowledge his or her fiduciary responsibility under the plan. A 3(21) fiduciary, or a co-fiduciary, investment consultant will have at least one of the three defining attributes listed below.
- Having discretionary authority or control to manage the plan, or actually exercising authority or control to Manage the plan or buy and sell its assets under section 3(21)(A)(i)
- Having authority or responsibility to render investment advice for compensation concerning plan assets, or actually doing so under section 3(21)(A)(ii)
- Having discretionary authority or responsibility for administering the plan under section 3(21)(A)(iii)
With regard to the services that the fiduciary responsibility is accepted, a co-fiduciary consultant has a duty to place the interests of plan participants ahead of his or her own. Consequently, the consultant must avoid all conflicts of interest under the plan and cannot act in his or her own self-interest.
ERISA 3(38) Fiduciary Investment Manager
An ERISA 3(38) fiduciary investment manager will accept discretion over plan assets and will assume full responsibility and liability, in place of the 401(k) plan sponsor, for the fiduciary functions belonging to the plan. The investment manager’s discretion can extend to selecting, monitoring, and replacing plan asset classes.
By taking responsibility for the plan’s decision making process, ERISA 3(38) fiduciary investment managers virtually remove the plan sponsor’s entire fiduciary duty by transferring that duty to themselves. Therefore, investment managers must avoid all conflicts of interest under the plan and cannot act in his or her own self-interest.
* If a co-fiduciary assumes fiduciary responsibility by a provision in writing, plan sponsors can mitigate their liability by ensuring that the consultant/advisor shares in that liability.
|Benefits to Plan Sponsor|
|has a fiduciary duty||No||Maybe||Yes||Determines Responsibility/Liability|
|states their fiduciary status in writing||No||Maybe||Yes||Reduced Significant Risk|
|liable for selecting plan options||No||Depends||Yes||Reduced Liability|
|liable for monitoring plan options||No||Depends||Yes||Reduced Liability|
|liable for replacing plan options||No||Depends||Yes||Reduced Liability|
|liable for determining mapping strategies||No||Depends||Yes||Reduced Liability|
|receives transferred risk from plan sponsor||No||Maybe||Yes||Reduced Significant Risk|
|evaluates risk tolerance||No||Maybe||Yes||Reduced Plan Investment Risk|
|provides fee transparency||No||Maybe||Yes||Reduced Plan Investment Cost|
|provides advice with accountability||No||Maybe||Yes||Receives Advice|