Fiduciary responsibility is serious business. It leaves sponsors of defined contribution retirement plans open to potential litigation and personal liability. Most sponsors have traditionally handled it on their own, according to a recent paper from Vanguard Strategic Retirement Consulting , but increasing litigation has caused many DC sponsors to seek outside professional help — something relatively new in the DC world.

The paper identifies basically three ways DC plan sponsors can approach their fiduciary responsibility:

• Do-It-Yourself – Investment committees need to adhere to a carefully defined and well-documented process that includes regular committee meetings, a diversified tiered investment  lineup that complies with ERISA Section 404(c), and committee members who are expert enough to meet ERISA's "prudent expert" standard. Extra protection from litigation can be achieved through fiduciary liability insurance and securing fiduciary warranties from providers.

• Hiring an investment advisor under ERISA Section 3(21) – A 3(21) investment advisor essentially acts as a co-fiduciary with the plan sponsor. While the 3(21) advisor accepts fiduciary responsibility for his or her investment advice, the sponsor retains control over the plan's assets.  
• Hiring an investment advisor under ERISA Section 3(38) – A committee that decides it doesn't have the expertise to safely manage its plan assets can hire a 3(38) advisor to take over sole responsibility for the plan. This means the sponsor no longer has any decision-making authority over the plan, though it does retain the responsibility for selecting a qualified investment advisor, monitoring his or her activities and decisions, and ensuring that fees incurred by the plan are reasonable.

"Whether plan sponsors do it themselves or hire a third party, the plan sponsor's liability can be mitigated but never completely eliminated," the paper concludes. "Each plan committee must decide which approach best fits their circumstances and risk tolerance."