A default 401(k) investment, a 529 plan, and a health savings account create different responsibilities. Before recommending investments, identify who owns the money and what its use changes.
When you help manage an employee benefit plan, your actual work determines your legal responsibilities. The Employee Retirement Income Security Act (ERISA) protects participants and beneficiaries, the people entitled to plan benefits.
A fiduciary must put those people's interests first when performing covered functions. Under ERISA §3(21)(A), status attaches to discretionary plan management or administration, control over plan assets, or qualifying investment advice for compensation. Discretion means authority to decide without obtaining approval for each decision. Asset control can create fiduciary status even without discretion.
For compensated, nondiscretionary advice, apply the restored five-part test under Title 29 of the Code of Federal Regulations (CFR), section 2510.3-21. The test separates ongoing, individualized advice a plan relies on from incidental sales conversations. All five elements must exist:
- You advise about the value of securities or other property, or recommend investing in, buying, or selling them.
- You provide that advice regularly.
Common mistakes
- Treating three similar funds as sufficient diversification. ERISA §404(c) requires materially different risk-return characteristics.
- Applying the first-90-day QDIA restriction to ordinary operating expenses. The restriction targets exit restrictions and charges.
- Using the old $10,000 K-12 ceiling. For 2026, apply $20,000 across the beneficiary's 529 savings plans.
Bottom line
- ERISA fiduciary status follows functions, and nondiscretionary compensated advice uses the restored five-part test.
- Participant-control and QDIA relief preserve prudent selection and monitoring duties.
- 529 qualified distributions are federally tax-free; the 2026 K-12 limit is $20,000 per beneficiary across plans.
- 529-to-Roth transfers require a 15-year account, exclude recent five-year funds, and face annual limits plus a $35,000 lifetime ceiling.
Exam shortcut
Start with the action in the stem: contributing, investing, spending, or transferring. Then identify whose eligibility, ownership, or duty controls that action. For a distribution, separate contributions from earnings before applying an education-account tax. For an HSA, first classify the expense as medical or nonmedical. For a transfer, check the destination and timing before calculating the smallest remaining limit.
The full lesson (about 3,395 words, 23 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C15
Browse all free Series 66 lessons or jump into free Series 66 practice questions.