DC Fiduciaries Consider Some Outsourcing

Fiduciaries of defined contribution (DC) retirement plans are becoming increasingly challenged to carve out time for their responsibilities and are looking at outsourcing some of them, according to new research from Russell Investments.

The research, titled “Between a Rock and a Hard Place: DC Plan Fiduciaries Are Feeling the Squeeze,” was authored by Rod Bare, a Russell defined contribution consultant, and Brian Golob, Russell’s global general counsel. The authors found that at the same time participants are relying more on DC plans as their primary source of retirement income, many fiduciaries of these plans are “challenged to find time to properly discharge their obligations and cultivate the resources needed to navigate today’s plan complexities.”

Bare and Golob also noted that plan sponsors are frequently finding their fiduciary responsibilities are increasing beyond their in-house capabilities with regard to implementing and administering investments solutions. In light of this trend, and to help minimize legal exposure, the authors recommend that certain fiduciary duties can be outsourced to 3(38) investment managers or 3(16) independent administrators, depending on the nature of the fiduciary duty.

“Under ERISA, plan fiduciaries have a high degree of flexibility in terms of defining roles,” said Bare and Golob. “The plan can delegate responsibility on the basis of relative strengths and plan needs.” They acknowledged there is no one-size-fits-all answer, but emphasized that for DC fiduciaries “there is strong value in exploring the available options for specific plans.”

The full research piece can be downloaded here.