Plan Sponsor contributor, Judy Ward, takes a hard look at what many believe is a growing trend to outsource certain activities by retirement plan fiduciaries.

A central theme in "Fiduciary Outsourcing Options" (February 2015) is that buyer and seller must be clear about the scope of work and document the agreement accordingly. This conversation importantly starts with a decision by a plan sponsor as to what fiduciary duties it seeks to delegate to consultants, asset managers and other types of advisors (to the extent legally allowable). By extension, this means that a plan sponsor should take inventory of resident skills, how much it can afford to spend on full-time employees versus contractors and whether there is a comfort level to perform certain tasks on its own. Notable quotes from "Fiduciary Outsourcing Options" include the following:

• "Searching for an outside fiduciary 'is an exercise in risk management...A sponsor should consider many factors about a fiduciary outsourcer's capabilities..." (Dr. Susan Mangiero)
• "An outsourcing provider should welcome a sponsor's questions and lend support for its thorough due-diligence selection process...the sponsor and outsourcer should discuss how their communications would work once the relationship starts." (Attorney Kim Shaw Elliott)
• "Not all companies promoting themselves as outsourced fiduciaries have the same ability to meet those responsibilities...You really have to look at their experience." (Attorney Ary Rosenbaum)
• "There can be a disconnect between what the outsourcer promoted that it will do and what the contract actually says the outsourcer will do." (Mr. Ronald Hagan)
• "Being a fiduciary means you need to have a prudent process. You have to have a basis and a rationalization for making the decision." (Attorney David Levine)
• "If a plan sponsor thinks that certain activities are going to be done by a fiduciary adviser, but the fiduciary adviser does not believe they are obliged to do such work, there is an expectations gap." (Dr. Susan Mangiero)

Based on my experience, there are a lot of ways to get things wrong. My view is that the Request For Proposal ("RFP") process to select an outsourced fiduciary entails education and feedback from ERISA (or public pension plan) counsel, prior to signing on the dotted line. Understanding that there are different kinds of fiduciaries is one aspect. Plan sponsor decision-makers are charged with monitoring delegates. This means that buyers must have a good sense as to how to best benchmark a service provider, once hired.

Nuts and bolts of contracting are addressed in "Expert Q&A on Outsourcing Fiduciary Investment Responsibilities" (Practical Law, February 2014) by Attorney David Levine and Attorney Allison Tumilty. Also check out "Outsourcing Employee Benefit Plan Services" (ERISA Advisory Council, 2014). Note the recommendations that the U.S. Department of Labor: "(A) educate plan sponsors on current practices with respect to outsourced services; (B) clarify the legal framework under ERISA for delegating responsibility to service providers; (C) provide additional guidance on the duty to select and monitor service providers; (D) facilitate the use of multiple employer plans and similar arrangements as a means of encouraging plan formation and easing administration burdens: and (E) update and provide additional guidance on insurance coverage and ERISA bonding of outsourced service providers."

Service providers have a golden opportunity to stand up and deliver help to prospective and existing retirement plan clients as they explore the use of outsourced fiduciaries. Building and maintaining a fiduciary outsourcing relationship can be complex and the professional liability is real. It is important to exercise care at the beginning and thereafter.