In my last four columns, I described how the sponsor of a qualified retirement plan such as a 401(k) plan--the "sponsor" actually being real flesh-and-blood people who serve as trustees and other named and functional fiduciaries of the plan--can insulate itself from virtually all day-to-day fiduciary investment risk as well as operational/administrative risk to which the sponsor would otherwise be subject as a result of sponsoring the plan.

The U.S. Department of Labor (DOL) provides, in its DOL Advisory Opinion 2002-06A (issued July 3, 2002), that a plan sponsor (typically through the board of directors of the sponsor/employer) has the power, pursuant to ERISA section 402(b), to delegate limited-scope duties to a specialized fiduciary responsible for administration of the plan (an ERISA section 3(16) Plan Administrator); one responsible for selecting, monitoring, and (if necessary) replacing the investment options offered in the plan (an ERISA section 3(38) Investment Manager); or one responsible for trustee duties defined in the plan (an ERISA section 403(a) Plan Trustee).

A plan sponsor also has the power, pursuant to ERISA section 402(b), to delegate limited-scope duties to a specialized ERISA section 3(21) fiduciary responsible for a narrowly defined issue where discretion can be exercised, such as the determination of whether or not it's prudent to hold the company stock of a plan sponsor as an investment option in the company's plan.

Alternatively, a plan sponsor can radically simplify things for itself. Instead of continuing to bear the inherent responsibilities associated with sponsoring a retirement plan, bearing the liability for parceling out some (or all) such duties to specialized fiduciaries on its own--which takes substantial time, investigation, due diligence, monitoring, etc.--the plan sponsor can simply off-load liability for such duties by delegating them all to a full-scope, professional, independent ERISA section 3(21) named fiduciary.

The acceptance by a full-scope ERISA section 3(21) fiduciary of these duties with respect to a qualified retirement plan such as a 401(k) plan is the gold standard of delegation of fiduciary responsibility (and liability) by a plan sponsor because it encompasses all other fiduciary duties. The only liability retained by the sponsor in these circumstances would be a residual oversight monitoring duty.

The Platinum Standard of Delegation 

But what if a plan sponsor could jettison even its residual oversight monitoring duty of the full-scope ERISA section 3(21) named fiduciary? That kind of power would represent the platinum standard of delegation of fiduciary responsibility (and liability) by a plan sponsor. In fact, ERISA allows a plan sponsor to do exactly that.

A plan sponsor can do so by joining a multiple employer plan (MEP) pursuant to section 413(c) of the Internal Revenue Code (IRC). A MEP is a qualified retirement plan such as a 401(k) plan maintained by two or more employers that are not required to be related as (1) controlled groups (IRC section 414(b)), (2) trades or businesses under common control (IRC section 414(c)), or (3) affiliated service groups (IRC section 414(m)). Employers that are subject to common control under IRC sections 414(b), 414(c), or 414(m) are treated as a single employer for the purpose of applying coverage under IRC section 410(b), while each unrelated employer is treated separately for various compliance demonstrations. Suffice it to say that unrelated employers retain their autonomy for tax deduction and compliance demonstration purposes.

By the way, a "multiple employer" plan, governed by IRC code section 413(c), should not be confused with a "multiemployer" plan, which is often referred to as a Taft-Hartley plan. A multiemployer plan, described in IRC Reg. 1.413-1(a), is a collectively bargained defined benefit pension plan maintained by more than one employer (usually within the same or related industries) whose employees are subject to collective bargaining agreements.

A MEP is set up by an entity--a principal plan sponsor--that bears all the responsibility (and therefore the liability) for running the retirement plan, even including the residual oversight duty to monitor a full-scope independent ERISA section 3(21) named fiduciary. The operations of the plan (i.e., administration) and the plan's assets (i.e., plan investment options) are transferred to an existing platform designed for the specific purpose of alleviating the burdens of fiduciary responsibility (and therefore fiduciary liability) from plan sponsors.

A plan sponsor that adopts a MEP--a plan cosponsor--has only one choice: to join or not to join the MEP. If an adopting plan cosponsor decides to join the MEP, that employer will not bear any fiduciary responsibility (or liability) at all. A MEP could allow, conceivably, even thousands of plan sponsor employers to join it and none of them would actually be a fiduciary and therefore would have no fiduciary responsibilities--or liabilities.

Some retirement plans such as larger 401(k) plans (i.e., those with many hundreds of employees or more) may want more "exclusivity" and have their own stand-alone plan. The same MEP-like scenario--without the MEP--can be created in a single employer plan through the use of specialized fiduciary methodologies employed by fiduciaries to protect employers from risk and improve outcomes for participants (and their beneficiaries).