Here's what I mean. From what the legal folks tell me, under both the Uniform Prudent Investor Act and the DOL regs, someone serving as a plan trustee (or fiduciary) who does not have the credentials to be considered an "expert" regarding selecting investments, can allay their fiduciary liability for this function, but only if they hire a recognized professional to take on that specific fiduciary role.

In other words, if you're a doctor, a lawyer or an Indian Chief (i.e., a non-expert when it comes to picking investments), you reduce your personal fiduciary liability for picking plan assets by hiring a professional investment advisor to assume the job of selecting and monitoring plan investments.

There, that was easy.

Or was it?

Notice the caveat in there. In order for the plan sponsor to lower his own fiduciary liability, he needs to hire another fiduciary. Thanks to dual registration, this can be a confusing distinction. The plan sponsors needs to make certain the individual (or firm) he hires will accept the role as a fiduciary. Fortunately, we know all SEC-registered investment advisors are, by definition, fiduciaries.

The same, unfortunately, is not true for other financial service professionals, including brokers who are dually registered as investment advisors. In the case of hiring a dually registered investment advisor, the plan sponsor must ask the vendor which hat he's wearing – and then make sure the investment management agreement specifically states the advisor is acting as a fiduciary as defined under ERISA. 

Anything less than that, and the plan sponsor cannot say with certainty he has hired a fiduciary And if the plan sponsor cannot say with certainty he has hired a fiduciary, he cannot say with certainty he has lowered his own personal fiduciary liability. And that, my friends, is the whole point, isn't it?

I said there were two easy steps. The second step, while often neglected, is, again, fairly simple. It comes down to one word: documentation. This article is too short to provide a thorough explanation of what is required of documentation, but suffice it to say the plan sponsor needs to document all his investment processes, including those involving the hiring and monitoring of the investment advisor and those involving the selecting and monitoring of underlying investment options.

The DOL has long said, rather than picking the "perfect" investment menu, it's more concerned with insuring plan sponsors have well defined processes and that they execute them consistently.

And it's easier to comply with this than most 401(k) plan sponsors allow themselves to believe.