Frequently Asked Questions

What are the services typically provided by a 3(38) investment manager?
A 3(38) investment manager will have discretionary control over plan investment options and oversee the selection, monitoring, and if necessary, replacement of plan investments. The 3(38) investment manager will provide a documented process including the plan’s Investment Policy Statement and regular investment review procedure. However, all retirement plan advisors should be providing these documents and procedures. The real key to a 3(38) investment manager is the fiduciary advice. When an advisor agrees to be a 3(38) investment manager, he is both accepting liability for his decisions and agreeing to place plan participant interests above his own. This tends to remove conflicts of interest resulting in lower-cost investments.

What is the difference between a 3(21) fiduciary and a 3(38) fiduciary?
The distinction between 3(21) and 3(38) is quite tricky. Section 3(21) of the Employee Retirement and Income Security Act (ERISA) describes who is a fiduciary, including those who fall under section 3(38). In fact, section 3(38) is the section whereby a fiduciary may appoint a third-party fiduciary for specific roles under section 3(21). The plan trustee is a fiduciary based on 3(21). The trick played by some advisors is that they label themselves “limited-scope” 3(21) or co-fiduciary (by the way, neither term appears in codes or regulations but are made up by the industry). Essentially, they state that they will support the actual 3(21) fiduciary (plan trustee or sponsor) with their duties but provide recommendations rather advice and hold no discretion over plan investments. These 2 key distinctions limit their liability and remove them from fiduciary status.

Will IFA accept 100% legal responsibility and legal liability regarding the plan investments?
Yes. As stated in our agreement with the plan, IFA will accept the role as fiduciary to the plan under ERISA section 3(38). This means that IFA will accept responsibility and liability for its investment selections. However, plan trustees and sponsors should note that the complete removal of liability is not possible. At the very least, plan sponsors will maintain the responsibility for selecting and monitoring IFA as an advisor. This is why IFA provides quarterly performance reports showing our adherence to the plan’s Investment Policy Statement.

Would the appointment of IFA as a 3(38) fiduciary require that we transfer the current company plan to a different recordkeeper and administrator – outside of our current provider? If so, please explain.
IFA believes in pure open-architecture and therefore is willing to work with any recordkeeper and administrator who is willing to work with us. Therefore, adding IFA to your plan can be as simple as turning over the investment selection process to IFA while maintaining your current plan service provider. However, some recordkeeper platforms do not support the IFA mandate of no revenue-sharing funds. In addition, IFA’s advice is best delivered through index portfolios that make it easy for participants to achieve a risk-appropriate, globally diversified portfolio. Again, some recordkeeping platforms do not support the management of these portfolios. If your current service providers do not offer these services, then a switch to a more robust provider may be necessary.

What are the direct benefits of IFA services to plan participants?
IFA advises on pre-allocated index portfolios that are designed to match an individual participant’s capacity for stock market risk. IFA does not simply provide participants with a long list of fund options with little if any guidance. Instead, IFA offers ten globally diversified index portfolios at varying and suitable risk levels. IFA provides a Portfolio Quick Guide, a Risk Capacity Survey and an interactive video enrollment and portfolio identification tool which all help direct them to an appropriate asset allocation.

What are the costs and fees associated with IFA’s services?
IFA charges a fee that is based on the total assets in the plan. For example, with $50 million of assets, IFA’s annual fee would be 0.2383%. This annual fee is charged quarterly at 0.0596% per quarter, based on $50 million. Our fee schedule is shown at www.ifafee.com. We provide a detailed invoice every quarter.

IFA’s fees (along with administrative and recordkeeping fees) can be paid in any of these three ways, at your option:

• 1. By Participant Per Capita
• 2. By Participant Pro Rata
• 3. By the Sponsor