Saturday, June 19, 2010



Which of the following are considered to be acting in a fiduciary capacity?
I. securities agent recommending an aggressive growth stock
II. investment adviser representative
III. executor of an estate
IV. CEO, when deciding on matching levels for a 401(k) plan

A. I, II

EXPLANATION: the securities agent is not a fiduciary, unless he's been granted discretion over the account. The CEO is performing a "settlor function" when deciding on matching levels--making a business decision, in other words. The executor of the estate is a fiduciary, so the answer had to contain "III".


Sunday, June 6, 2010

Settlor Functions practice question

If the test asks about "settlor functions," maybe it would throw something like this at you:

An employee participant of a 401(k) plan is 61 years old. A family member, who is an attorney with a specialization in financial matters, tells her that if her company had provided a higher matching contribution she "would be a lot better off financially" now. Therefore, under ERISA, the CEO and other fiduciaries of the plan
A. can be sued up to the amount that the company could have contributed with a higher matching incentive in place
B. can not be sued for breach of fiduciary duty
C. can be sued up to the amount that the company could have contributed with a higher matching incentive plus the expected return on that amount over the holding period
D. can only be sued for breach of fiduciary duty while performing settlor functions

EXPLANATION: as we said in the previous post, the CEO's decision on how the company will match employees' contributions, or whether they will match them at all, are examples of "settlor functions" in which the fiduciaries to the plan are NOT acting as fiduciaries. Instead, they are making business decisions. So, A and C can be eliminated, and so can D. Remember, the CEO is not a fiduciary based on his title of CEO. He's a fiduciary to the plan participants and their beneficiaries only when functioning in that capacity. His or her decision to start or stop a 401(k) plan would be a "settlor function" based on how it affects the business. If, on the other hand, the 401(k) plan offered to employees does not provide enough information on the funds or the participants' balances, or doesn't allow them to alter their investment choices at least quarterly, then the CEO could be breaching his or her fiduciary duty.