Retirement plans lose money in bad markets, and the Employee Retirement Income Security Act of 1974 (ERISA) does not punish that. ERISA punishes the fiduciary who built the menu carelessly, served someone other than the participants or let the plan deal with an insider.
ERISA protects workers' retirement money in private-sector employer plans. It does this by placing strict duties on anyone who controls that money or advises on it. The Department of Labor (DOL) enforces those duties.
ERISA fiduciary status depends on what you do, not on your title. Under ERISA Section 3(21)(A), you are a fiduciary to the extent that you:
- exercise discretionary authority or control over plan management, or any authority or control over plan assets;
- give investment advice for a fee or other compensation, direct or indirect; or
- have discretionary responsibility for plan administration, such as deciding benefit claims.
Under ERISA, the words "to the extent" limit the duty to the role you play. A payroll vendor that processes contributions under fixed rules makes no judgment calls, so it is not...
Common mistakes
- Stretching 404(c) to the menu. "The participant picked it" never excuses an overpriced or unmonitored fund. The relief covers only choices among prudently selected options.
- Counting siblings as relatives. A brother or brother-in-law falls outside the relative list. A grandchild or son-in-law falls inside it.
- Scrambling the QDIA clocks. Notice is 30 days, the exit-charge waiver lasts 90 days and the capital-preservation cap is 120 days. Ongoing fund fees still apply inside the 90 days.
Bottom line
- Fiduciary status is functional: discretion over plan management or assets, discretionary administration, or paid advice meeting all five 1975 test elements; the 2024 rule never took effect.
- A 3(21) adviser recommends; a 3(38) manager (SEC adviser, state adviser filing with DOL, bank or multistate insurer) decides and acknowledges fiduciary status in writing.
- ERISA 404(a)(1) requires exclusive purpose, prudent expert care, diversification unless clearly imprudent, and following plan documents consistent with ERISA; prudence is judged by process, and collateral benefits only break true ties.
- 404(c) relief needs at least three diversified options with materially different risk and return, changes at least every three months and enough information, and never covers selecting or monitoring the menu.
Exam shortcut
Work every ERISA stem in the same order. Ask who acted. Discretion makes someone a fiduciary, but advice does so only if all five elements fit. Ask who sat across the table. Run the party-in-interest list, and stop relatives at spouse, ancestors, descendants and their spouses. Look for a named exemption: participant loan, reasonable services, level fee or computer model, or PTE 2020-02.
The full lesson (about 4,089 words, 27 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C25
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