Fiduciaries Have an Important Role in Helping
Participants Diversify

By Peter Ferrise, Investment Director


For a participant-directed defined contribution plan, an investment fiduciary has three fundamental duties under the Employee Retirement Income Security Act of 1974, as amended (ERISA):

  1. Provide a broad range of investment options
  2. Select, monitor, remove and replace investment options
  3. Provide investment options and related services that are suitable and appropriate for the particular needs and abilities of the employees covered under the plan

One of the most important and daunting responsibilities of a retirement plan fiduciary for a participant-directed defined contribution plan is selecting and monitoring an investment lineup that allows sufficient opportunity for the plan’s participants to diversify their retirement assets.

Why Diversification is Important

Diversification in a retirement plan can help to minimize the risk of large losses for participants – and liability for fiduciaries. With a growing risk of litigation, lack of resources, and increasing complexity in regulations, many organizations are exploring how to better manage their retirement plan’s investment lineup, control risk, and keep costs down. Organizations can outsource investment decisions for the retirement plan but this requires a careful evaluation of the pros and cons.

Carefully Weigh the Pros & Cons for Outsourcing Investment Decisions

With internal resources at a premium, some plan sponsors choose to outsource activities related to selection and monitoring of investments to either a nondiscretionary 3(21) investment adviser or to a discretionary 3(38) investment manager.

While a plan sponsor cannot subcontract out all of his or her responsibilities, relying on a third-party investment adviser or manager to help fulfill them may help mitigate the risk that comes with a lack of deep knowledge of the issues a fiduciary confronts.

Outsourcing does not eliminate all potential liability for the plan sponsor, however, as the plan sponsor remains responsible for the prudent selection and monitoring of the investment adviser or manager.

When hiring an investment adviser or manager, a plan fiduciary should investigate the adviser or manager’s qualifications, provide them with complete and accurate information about the plan, and confirm that reliance on the adviser or manager’s advice is reasonably justified under the circumstances. Plan fiduciaries also should obtain, in writing, an acknowledgment from the outside adviser or manager that they recognize their fiduciary status.

PNC Retirement Solutions® includes our 3(21) Investment Advisory Service in our Vested Interest® bundle of defined contribution plan services. Our 3(38) Investment Management Service is available for an additional fee.

When deciding between these two alternatives, a plan sponsor may want to view the decision in the framework of three important factors: Resources, Rule, and Risk.  View our checklist to help you decide

If you have questions about outsourcing investment selection and monitoring for your plan, please reach out to your Relationship Manager or PNC representative.

Peter Ferrise
Investment Director

Inside Vested Interest®

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Important Legal Disclosures and Information

The material presented in this newsletter is of a general nature and does not constitute the provision by PNC of investment, legal, tax, or accounting advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed herein are subject to change without notice. The information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy.

The PNC Financial Services Group, Inc. (“PNC”) uses the marketing name PNC Institutional Asset Management® for the various discretionary and non-discretionary institutional investment activities conducted through PNC Bank, National Association (“PNC Bank), which is a Member FDIC, and through PNC’s subsidiary PNC Capital Advisors, LLC, a registered investment adviser (“PNC Capital Advisors”). PNC Bank uses the marketing names PNC Retirement Solutions® and Vested Interest® to provide defined contribution plan services and PNC Institutional Advisory Solutions® to provide discretionary investment management, trustee, and other related services. Standalone custody, escrow, and directed trustee services; FDIC-insured banking products and services; and lending of funds are also provided through PNC Bank. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”). Investment management and related products and services provided to a “municipal entity” or “obligated person” regarding “proceeds of municipal securities” (as such terms are defined in the Act) will be provided by PNC Capital Advisors.

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