401k plan types of investors

401K plan Types of Investment Providers

(The short as I could make it version)

Attention New Jersey Business Owners. You have three types of investment providers for your plan: a broker, a Section 3-21 investment fiduciary, and a Section 3-38 investment manager fiduciary.

● The broker provides the investments that a business owner requests, and no more. They don’t give investment advice.
● Section 3-21 investment fiduciary provides investment recommendations. However, the plan’s fiduciary, the business owner, decides which investments are included in the plan.
● Section 3-38 fiduciary is an investment manager who decides on the investments for the plan, business owner.

Investment Providers Responsibility & Liability

When using a Broker, the plan sponsor or business owner takes full responsibility for the investment selection. They also take on the ongoing responsibility to monitor the performance of the investments in the plan. Section 3-21 investment fiduciary provides recommendations and is therefore partially responsible. However, since the business owner still makes the final determination, they still retain most of the responsibility. Thus, both parties should monitor the investments’ performance to prove they are acting in the participants’ best interest.

Finally, the Section 3-38 investment manager fiduciary takes on nearly all the responsibility as they make all the decisions and are responsible for monitoring the investments’ performance. Therefore, the business owner must explain the hiring decision and monitor the fiduciary’s performance.

A 3-38 fiduciary protects the business owner from much of the investment liability as possible. However, the business owner is still responsible for overseeing the plan and can never completely avoid liability. There is a cost to this higher level of service to the plan.
There are benchmark reports that can compare your current plan costs and services to the industry’s costs for the same services.

As always, seek the advice of your financial professionals before implementing any method on your own.

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Ken Gibbons, CPA & CPFA