How to Reduce Your 401(k) Liability

Does your plan leave you exposed? 

As a CEO, you carry a lot of responsibility. But there is one significant, invisible risk you might be carrying right now without even knowing it: personal legal exposure related to your company’s 401(k) plan.

Pension & Wealth Management Advisors stepped in to help a fast-growing tech firm where the CEO was in exactly these shoes.

He was brilliant at running his company, but he was unknowingly acting as the sole investment fiduciary for the corporate retirement plan. That meant if an employee sued over high fees or poor investment performance, the CEO’s personal assets could be at risk.

To make matters worse, a corporate audit was looming, and his investment documentation was incomplete.

Here is how we turned a compliance challenge into a major corporate win and how you can do the same.

The Danger of the Accidental Investment Fiduciary

Many founders don’t realize that setting up a 401(k) plan automatically attaches fiduciary duties. Under ERISA, if you select and monitor the plan’s investment options, you bear significant personal legal exposure. At this tech firm, the CEO was buried in operational work. He didn’t have the time to track fund performance or document his investment decisions.

When their corporate auditors started asking for a clearly defined investment process, the gaps became impossible to ignore.

The Solution: Switch to a 3(38) Fiduciary Model

When Pension & Wealth Management Advisors stepped in, we immediately shifted the company to an ERISA 3(38) fiduciary model.

By hiring us as its investment manager, the tech firm contractually transferred the discretionary investment responsibilities and the associated liability to our team.

What is a 3(38) Fiduciary?

An ERISA 3(38) fiduciary is an independent investment manager hired to take discretionary authority over your plan’s investments.

Unlike a 3(21) advisor, who offers recommendations while leaving the fiduciary responsibility with the plan sponsor, a 3(38) investment manager takes full discretionary control over selecting and monitoring the investment lineup, meaningfully shifting that liability away from the employer.

Results

By making this single structural change, we delivered three significant outcomes for the tech firm:

• Reduced Personal Exposure: We assumed contractual responsibility for discretionary investment decisions, significantly reducing the CEO’s personal liability for investment selection.
• Audit-Ready Documentation: We established a rigorous, repeatable investment process that met their corporate auditors’ requirements.
• Time Recaptured: The CEO stopped playing amateur fund manager and focused entirely on scaling his company.

The Bottom Line

You shouldn’t have to put your personal assets at risk simply to provide a retirement benefit for your employees.

If you haven’t explicitly hired an ERISA 3(38) investment manager, you may be carrying far more personal exposure than you realize.

At Pension & Wealth Management Advisors, we specialize in helping business leaders understand and address this risk. We manage your plan’s investment responsibilities so you can focus on running your business.

Want to see if your plan leaves you exposed?

Contact us today to schedule a complimentary consultation.