The Department of Labor has ruled that an adviser hired by a participant to invest his 401(k) money can escape ERISA liability if he or she is not a fiduciary of the 401(k) plan, or has never been one in the past.
In the past, the department has provided definitions of what constitutes a fiduciary at the plan level. A provider is a fiduciary if he has given advice as to the value of securities, on the buying or selling of securities, investment policies or strategy, overall portfolio compensation or diversification of plan investments. The new opinion applies those definitions to individuals hired by participants to make investment decisions for them, no matter where they tell the participant to put the assets.
If a fiduciary causes the participant to convert the funds in his 401(k) into an IRA also managed by the fiduciary, the latter could be considered to be using plan assets in his own interest, in violation of ERISA.
The department was moved to turn its attention to individuals whom participants hire to help them decide how to invest following an inquiry from Deseret Mutual Benefit Administrators.
Some 17% of 401(k) plans have brokerage windows which permit participants in 401(k)s to buy any equity or mutual fund investment. Industry officials queried whether brokers or others who persuade participants to take their money out via such a window are covered. Calls to Department officials were not returned by press time.