In my previous article, I laid out Strategy One — the foundational imperative of developing strong plan fiduciary governance. Today, we build upon that foundation with what I consider one of the most powerful — and most underutilized — protections available to Church plan sponsors: the prudent delegation of duties to qualified service providers.
Delegation Is Not Weakness — It Is Wisdom
If Strategy One was about building the foundation, Strategy Two is about knowing when to call in the experts to help you build the house. And to be clear: this is not about abdicating responsibility. In fact, it's quite the opposite. Relevant laws encourage delegation to prudent professionals. Even more significantly, the failure to delegate when internal expertise is lacking may be considered a breach of fiduciary duty.
Think about that for a moment. A plan sponsor who tries to go it alone — and lacks either the requisite time, expertise, process or resources (or a combination of all the above) in investments, compliance, or plan administration — is not being heroic. More pointedly, they may be viewed as acting imprudently. And in the current legal environment, recklessness can have consequences — as demonstrated in certain cases.
The lesson is clear: take care to get the right people in the right seats, contractually define their roles, and hold them accountable.
And, always remember, non-ERISA church plan status does not equate to a lack of fiduciary responsibilities. When it comes to certain functions, i.e., investment management and selection, the relevant standard of the Uniform Prudent Investor Act and ERISA are often similar in application.
Delegation Is Powerful — But Not Absolute
Even a decision to delegate certain fiduciary duties is also, by definition, a fiduciary decision about what not to delegate. And the responsibilities you choose to retain remain fully subject to fiduciary scrutiny.
To act prudently, plan sponsors must explicitly identify and execute the duties they retain. At a minimum, those responsibilities include:
1. Governance Oversight and Fiduciary Process
- Establish and maintain a formal fiduciary governance structure (committee, charters, meeting cadence)
- Document decisions using a consistent, repeatable process
- Ensure fiduciary training and clarity of roles
- Maintain records demonstrating procedural prudence
2. Selection, Monitoring and Replacement of Service Providers
- Conduct a prudent selection process: review, compare, and decide
- Evaluate qualifications, experience, and fiduciary status (e.g., 3(21) vs. 3(38))
- Assess fee reasonableness, including all direct and indirect compensation
- Perform ongoing monitoring, on an annual basis
- Replace providers when they no longer meet expectations or other service providers have been identified as more qualified, capable or appropriate to fulfill the requirements of the organization and in consideration of the above four bullets.
3. Oversight of Delegated Investment Fiduciaries
- Even when you appoint a 3(38) investment manager, you still retain responsibility to:
- Monitor the 3(38)'s performance relative to mandate
- Confirm their adherence to the contractual terms
- Evaluate the continued appropriateness of the relationship
- Take care to ensure delegation agreements are clearly documented, enforced and reviewed on a periodic basis
4. Plan Administration and Operational Integrity
- Ensure proper execution of
- Contributions and distributions
- Participant disclosures
- Regulatory compliance obligations
- Oversee recordkeepers and TPAs
- Confirm operational processes are effective
5. Fee Monitoring and Cost Control
- Continuously assess whether total plan costs remain reasonable
- Benchmark fees against comparable plans
- Understand all layers of compensation, including revenue sharing
6. Participant-Centric Responsibility
- Act solely in the interest of participants and beneficiaries
- Ensure the plan supports meaningful retirement outcomes
- Monitor whether services align with participant needs
The Practical Reality of Delegation of Fiduciary Duties
If there is one lesson to be learned from the Christian Brothers defined benefit plan underfunding crisis, plan sponsors can delegate or outsource certain fiduciary duties or specific functions, but they cannot outsource fiduciary responsibility.
A well-designed fiduciary structure clearly answers two questions:
- What have we delegated?
- What have we intentionally retained — and how are we executing it prudently?
When this line is blurred, accountability is blurred — and ambiguity is often where problems begin.
The most effective plan sponsors do not simply delegate — they architect responsibility, ensuring every retained duty is:
- Clearly defined responsibilities
- Properly resourced execution
- Procedural discipline
- Rigorous documentation
Prudent Selection of Service Providers
Fiduciaries are required to make informed decisions when selecting, monitoring, and replacing service providers. The law requires all covered service providers to disclose information including a description of services provided and all direct and indirect compensation. Fiduciaries must evaluate this information prior to selection — and periodically thereafter — to ensure that services are both necessary and fees are reasonable.
Take caution: This is not a one-and-done exercise, but an ongoing process. Selecting a service provider and then walking away is precisely the kind of passive oversight that gets plan sponsors into trouble. The DOL has been crystal clear on this point: selecting service providers is a fiduciary function, and fiduciaries must act prudently and solely in the best interest of participants. If fiduciaries lack the requisite expertise to make informed decisions, they may need to hire professional assistance.
This all begs the question: What does it mean to "act prudently" in this context? At Investing for Catholics, we rely heavily on the Uniform Prudent Investor Act and ERISA itself to define "acting prudently" as following an objective process to:
- Review all available and relevant information
- Conduct a meaningful and unbiased comparison
- Arrive at a well-informed and objective decision
- And, do it all over again on an annual basis…following a sound and repeatable process to organize, formalize, implement and monitor.
Simple? Yes. But you would be surprised how many plan sponsors skip one or more of these steps — and how costly that shortcut may be.
Key Criteria for Investment Selection and Monitoring
When it comes to investments — arguably the most scrutinized area of plan management — fiduciaries must ensure a robust framework is in place. Here are the critical elements:
- Investment Policy Statement (IPS): A formal, documented IPS is crucial. It outlines the specific criteria for selecting, monitoring, and potentially replacing investments, providing a defensible methodology for all decisions. Without an IPS, you are flying without instruments — and the turbulence will come.
- Participant Needs: The overall investment lineup should align with the diverse needs, risk tolerances, age demographics, and retirement timelines of the employee population. Options like target date funds — which automatically adjust asset allocation over time — are common qualified default investment alternatives (QDIAs) that serve participants who may or may not make active choices.
- Ongoing Monitoring: Investment selection is not a one-time event. Plan fiduciaries must regularly monitor the performance and suitability of all funds to ensure they continue to be appropriate choices and meet the plan's objectives.
- Fiduciary Responsibility & Prudence: Plan sponsors must act, establish, and follow a prudent process for selecting and monitoring all investment options. Process, as I emphasized in Strategy One, is everything.
- Diversification: The plan must offer a broad range of investment alternatives — typically at least three with materially different risk and return characteristics, such as equities, fixed income, and capital preservation funds — to allow participants to build a diversified portfolio and minimize the risk of large losses.
- Performance & Risk: Investment options should be evaluated on historical performance compared to relevant benchmarks, while also considering their risk levels and volatility. Fiduciaries must focus on risk-return factors and cannot sacrifice returns or take on undue risk for non-financial objectives.
- Fees & Expenses: Plan fiduciaries are required to ensure that all plan and investment-related fees are reasonable in relation to the services provided. High fees can significantly reduce long-term returns, so low-cost options are often preferred.
A prudent process for investment selection and monitoring must also consider asset class exposure, fees and expense ratios (including revenue sharing), number of holdings, types of investments (annuities, guaranteed accounts), the rationale for investment selection decisions, and ongoing performance monitoring with a clear basis for replacement.
Because investments and their fees directly impact performance and participant outcomes, they are highly scrutinized and tend to be — let's be frank — a breeding ground for lawsuits. This is precisely why delegation to qualified professionals is not just smart; it can be an important step.
Delegation of Investment Duties Can Enhance Fiduciary Protection
When you delegate to a qualified investment fiduciary, you are not shedding responsibility — you are exercising it. You are fulfilling the fiduciary obligation to ensure that the people managing your plan's assets are competent, credentialed, and contractually accountable.
This is the part that surprises many Church plan sponsors — and it shouldn't. Under the Uniform Prudent Investor Act (UPIA), a Trustee is permitted — and encouraged — to delegate investment management functions.
A direct quote below from the Uniform Prudent Investor Act states, as follows:
"The Trustee shall exercise reasonable care, skill, and caution in:
- Selecting an agent
- Establishing the scope and terms of the delegation
- Periodically reviewing and monitoring the agent's actions to ensure the agent's performance of agreed-upon duties and compliance with the terms of the delegation."
and…
"(c) A Trustee who complies with these requirements is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated."
Read that again.
The law may provide a safe harbor for trustees who properly delegate in accordance with applicable standards. This is not a loophole. It is a deliberate legal framework designed to encourage plan sponsors to bring in the right expertise — and to help protect them when they do so prudently. In the wake of the Scharfenberger verdict, this protection should be at the forefront of every Church plan sponsor's mind.
Selecting Advisers: Understanding the 3(21) vs. 3(38) Distinction
Not all advisory relationships are created equal, and understanding the difference between a 3(21) Advice Fiduciary and a 3(38) Investment Manager is critical for Church plan sponsors seeking to maximize fiduciary protection.
| 3(21) Advice Fiduciary | 3(38) Investment Manager |
|---|---|
| Advisor and plan sponsor share co-fiduciary status on investments | Advisor is appointed to select, monitor and replace investments |
| Advisor assists in drafting IPS | Advisor commonly drafts IPS |
| Advisor recommends investments; plan sponsor retains full investment decision-making authority | Advisor builds initial fund menu or provides account management |
| Advisor assists with investment monitoring | Advisor monitors investments |
| Advisor recommends changes | Advisor makes changes |
| Plan sponsor must follow a documented process for selecting and monitoring the 3(21) fiduciary and the investments | Plan sponsor must follow a documented process for selecting and monitoring the 3(38) fiduciary, but not for investments |
The distinction is significant and important to understand. With a 3(21) advisor, the plan sponsor retains decision-making authority — and with it, the corresponding liability. With a 3(38) investment manager, the fiduciary responsibility for investment decisions shifts to the manager. Many Church plan sponsors may lack either, or all, of the following: internal investment expertise, technology, resources, and time to draft and implement a prudent process for investment selection and monitoring. This is precisely why the 3(38) arrangement exists in the pages of both UPIA and ERISA. Delegation to a 3(38) may offer a higher level of fiduciary protection to Church plan sponsors.
This is what I meant in Strategy One when I described delegation to a 3(38) investment manager as one of several important steps a plan sponsor can take. It is not an abdication of duty — it is the fulfillment of it.
If a fiduciary chooses not to delegate investment selection responsibility to a 3(38), they retain full authority over those decisions—and the fiduciary liability that accompanies them. This means the plan sponsor is directly accountable for establishing, executing, and documenting a prudent investment selection and monitoring process. In the absence of delegation, there is no transfer of risk—only a concentration of responsibility.
At this point, an important clarification must be made. While a plan sponsor can delegate certain fiduciary functions, they cannot delegate away the duty to monitor the party to whom those functions are assigned.
Delegation changes who performs the work — but it does not eliminate responsibility for ensuring that the work is performed prudently and in accordance with the agreed-upon terms.
Consider this simple test for defending the prudence of your actions:
"Could I demonstrate a consistent, documented monitoring process of a delegated fiduciary to a regulator or court?"
If not, the issue is not the provider — it is the process. Delegation is a powerful fiduciary tool — but only when paired with disciplined and process-oriented oversight.
The prudent plan sponsor does not step back after delegation of certain duties. They step into a different role, moving from decision-maker to overseer. From operator to accountability owner.
Delegation Can Be Your Strong Shield
I know I've covered a lot of ground here. So, I'll leave you with this last thought: delegation is not a sign of weakness. It is a hallmark of prudent governance. The law recognizes it. The courts have, in some cases, viewed it favorably. And in the current environment — where personal liability is no longer theoretical — it may be one of the most important decisions a Church plan sponsor can make.
The CBERP crisis and the Scharfenberger verdict have made one thing abundantly clear: the cost of going it alone may exceed the cost of bringing in qualified professionals. The question is not whether you can afford to delegate. The question is whether you can afford not to.
In the next installment of this series, I will address Strategy Three — and we will continue building out the framework for a healthy, defensible, and participant-centered Church retirement plan.
If you would like to discuss your plan's service provider relationships — or if you would like to discuss considerations related to selecting and monitoring fiduciary advisors — please know I am here for you. Simply email mary@ifa.com.
Next in the Series: Strategy Three — Coming Soon
About the Author
Mary Brunson – Co-Founder, Senior Vice President, Wealth Advisor, Investing for Catholics.
Mary Brunson is the Co-founder of Investing for Catholics (IFC), a division of Index Fund Advisors, Inc. (IFA). Since 2009, she has focused her advisory efforts on Catholic faith-consistent investing, applying financial science to support fiduciary advice and institutional wealth services aligned with Catholic values. She works closely with religious orders and Catholic organizations—including diocesan plans, endowments, and foundations—as well as public trusts, pension plans, and individuals.
Disclosures
Advisory services are offered through Index Fund Advisors, Inc., a registered investment adviser. Readers should consult their own legal, tax, or financial professionals regarding their specific situation before taking any action.
This article is provided for informational and educational purposes only and is not intended to constitute legal, tax, or investment advice. The discussion of laws, regulations, court decisions, fiduciary standards, and governance practices is general in nature and may not apply to all plans or circumstances. Outcomes and interpretations may vary based on specific facts, plan design, governance practices, and applicable law. No assurance can be given that any approach, strategy, or practice will achieve a specific result or reduce risk.
Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results.
Certain statements herein reflect the author's opinions and are subject to change without notice. Forward-looking statements are not guarantees of future outcomes.
