IFA’s Benefits to Plan Sponsors:

Fiduciary Protection

The importance of minimizing plan costs is fundamentally important to enhancing returns. This is why ERISA mandates that plan trustees benchmark fees for all aspects of the plan. Mandates for benchmarking also apply to mutual fund performance and fees relative to a peer group.

Given the substantial liability in combination with the knowledge and information required to make informed choices, most plan sponsors enlist the help of an advisor. The typical advisor will suggest which investments a plan should contain and may provide participants education for making plan allocations. However, for a plan sponsor, this is insufficient. Most advisors are compensated via 12b-1 fees. As a result of this compensation scheme, advisors make sure their investment suggestions are nothing more than suggestions, leaving the liability for the ultimate decisions, and any negative outcomes, squarely on the shoulders of the plan sponsor. Most advisors will not sign on as a fiduciary to act in the plan’s best interests because they may be acting in their own best interests, instead.

The investment advice provisions of the recently enacted Pension Protection Act of 2006 relieve employers of liability associated with providing participants such advice as long as the advice is provided by a “fiduciary advisor” under an "eligible investment advice arrangement." Facilitating this sort of arrangement is accomplished only through a written agreement which sets forth the investment advisor as an ERISA 3(38)-defined “investment manager.” In so agreeing, the advisor becomes an ERISA 405(d)(1) defined “independent fiduciary.” This arrangement permits the plan fiduciaries to delegate their personal responsibility for the selection and monitoring of a plan’s menu of investment options to the advisor under ERISA section 3(38). The plan fiduciaries retain the responsibility (and liability) for selecting, monitoring and replacing (if necessary) the investment manager periodically to ensure that the manager is handling the plan’s menu of investment options prudently.

IFA is an ERISA 3(38) investment fiduciary which provides extensive benefits to plan sponsors and plan participants alike by:

  • • Establishing the plan’s investment policy
  • • Identifying risk-appropriate asset allocation models and implementing them through index portfolios
  • • Prudently selecting, monitoring, removing and replacing 401(k) plan investment options
  • • Establishing each plan participant’s individual Risk Capacity to educate and assist in the selection of a risk- appropriate portfolio
  • • Providing investment education materials to advance participant knowledge of investing
  • • Assembling and quarterbacking the 401(k) team including custodian, recordkeeper, and third party administrator and overseeing the administration of the plan

By assuming these important fiduciary obligations, IFA significantly reduces the legwork and burden that fall upon the plan sponsor and substantially simplifies the duties regarding the plan. IFA's goal is that 401(k) plans will be prudently executed from both administrative and investment perspectives, and that participants will benefit from investments that will set them on their best course for retirement.