By Marcia S. Wagner and Ari J. Sonneberg
The traditional retirement plan industry used to be relatively easy to understand. Recordkeepers kept records. Third-party administrators administered plans. Investment advisers advised. Asset managers managed investments. Payroll companies processed payroll. Employers sponsored retirement plans. Those distinctions are rapidly disappearing. The implications for this development are significant and should be on the radar of all of the respective parties.
Consider how far the roles have shifted. Today’s recordkeeper may also provide investment advice, managed accounts, financial wellness services and rollover products, layering advisory functions on top of what was once a purely administrative role. Investment advisers, in turn, increasingly provide fiduciary governance, vendor searches, participant advice and plan-management services that used to sit squarely within an administrator’s domain. Asset managers have moved into technology, offering platforms and individualized advice tools directly to participants. Payroll companies now offer integrated retirement plans, insurance companies operate recordkeeping platforms, and fintech firms combine administration, investments and participant communications under a single roof. Even pooled employer plans, a relatively new structure, can bundle functions that were historically performed by numerous independent providers into one arrangement. The lines that once separated these roles have not just blurred; in many cases, they have disappeared altogether.
The retirement industry is experiencing what might appropriately be called the Great Convergence. For plan sponsors, this convergence can be a genuine source of efficiency, allowing them to consolidate relationships and streamline administration. At the same time, it can make one of the most fundamental questions in analyzing ERISA fiduciary responsibility surprisingly difficult to answer: who, exactly, is responsible for what? That question is no longer academic. It is typically the first one plaintiffs’ counsel ask when evaluating an ERISA fiduciary-breach or excessive-fee case, and a plan sponsor that cannot answer it quickly is a more attractive litigation target than one that can.
ERISA Follows Function, Not Job Titles
One of the fundamental principles of ERISA is that fiduciary status generally depends upon function. The name appearing on a business card does not control the analysis. Neither does the title in a service agreement. This is not just industry practice; it is codified at ERISA §3(21), which defines a fiduciary by what a party actually does – exercising discretionary authority over plan management or assets, rendering investment advice for a fee, or exercising discretionary responsibility over administration – not by what its contract for services calls it. A company can perform fiduciary functions with respect to one activity while performing non-fiduciary functions with respect to another. This becomes increasingly important as providers offer multiple services. A recordkeeper might perform ministerial administrative functions in one part of its organization while another affiliate provides fiduciary investment advice. An adviser might provide non-discretionary consulting for one purpose and accept discretionary fiduciary responsibility for another. An asset manager might provide investments while an affiliated entity operates participant advice technology.
The appropriate analysis, therefore, requires plan sponsors to look beneath the provider’s overall label and identify the specific functions being performed.
Who Selects and Monitors Whom?
Convergence can also produce long and complicated chains of responsibility that are not always obvious at the outset of a relationship. Consider a fairly typical scenario: a plan sponsor hires an adviser, and that adviser recommends a recordkeeper. The recordkeeper, in turn, recommends its own affiliated managed-account provider, which uses investment products managed by yet another affiliate, while the recordkeeper simultaneously provides rollover services to participants who are terminating employment. By the time this chain plays out, a plan sponsor may be several layers removed from the parties actually making decisions about its participants’ money.
Who monitors each party? Who evaluates conflicts? Who determines whether the compensation is reasonable? Who evaluates whether the managed-account service continues to provide value? ERISA permits fiduciaries to delegate many responsibilities, but delegation does not mean abdication. The fiduciary responsible for appointing another fiduciary must still engage in a prudent selection process at the outset and must continue to appropriately monitor the appointee throughout the relationship. As the chain of responsibility grows longer and more layered, clarity regarding exactly who appointed whom, and who is responsible for monitoring whom, becomes increasingly important. The duty to monitor is not a one-time obligation that ends at appointment. The Supreme Court held, in Tibble v. Edison International, 575 U.S. 523 (2015), that the duty of prudence is continuing, meaning a fiduciary must keep monitoring a provider it has selected, not merely select it prudently at the outset. A plan sponsor that loses track of who is performing which function within a converged arrangement has, on that reasoning, likely failed to satisfy this continuing duty. Additionally, because ERISA §405(a) imposes co-fiduciary liability on a fiduciary who knowingly participates in, or fails to remedy, another fiduciary’s breach, an unclear chain of responsibility can expose more than one party in the arrangement to a breach claim.
The Rise of the 3(16) Administrator
Another example of convergence involves providers marketing themselves as “3(16) fiduciaries.” Outsourcing administrative fiduciary responsibilities can be valuable. But sponsors should not assume that hiring a 3(16) fiduciary transfers every administrative responsibility.
The contract matters. What duties has the provider actually accepted? Does it determine eligibility? Approve distributions? Interpret plan provisions? Handle claims? Sign the Form 5500? Correct operational failures? What responsibilities remain with the employer? A plan sponsor that believes it has transferred a function that the provider believes it has retained can create a dangerous plan governance gap. That gap is precisely where liability tends to land. The responsibilities described in the contract should, therefore, correspond to the actual operating arrangement.
Pooled Employer Plans and the New Bundled Model
Pooled employer plans, or PEPs, illustrate the phenomenon of convergence particularly well. A single PEP may involve a pooled plan provider, a trustee, a recordkeeper, an investment adviser, an administrator, and any number of other service providers, all working together to serve participating employers. Some of those functions may be performed by affiliates of the same corporate family, while others may be outsourced to unrelated third parties, and the resulting web of relationships can be difficult for a participating employer to fully untangle. The attraction of this bundled model for employers is obvious: a well-designed PEP can relieve participating employers of substantial administrative burdens they would otherwise have to manage on their own, and it can potentially create meaningful economies of scale that smaller, standalone plans cannot achieve.
Joining a PEP, however, does not mean that an employer should stop asking fiduciary questions once the arrangement is in place. To the contrary, the employer should take the time to understand the respective responsibilities of the pooled plan provider and any other fiduciaries involved, the responsibilities that remain with the employer itself notwithstanding the pooled structure, the fees paid by the plan and by participants at every level of the arrangement, and the conflicts of interest that can be created by affiliated service arrangements within the PEP. Bundling services in this way can simplify day-to-day administration for the employer, but it can simultaneously make the underlying economic relationships considerably more complicated to evaluate.
Follow the Money
One of the most important consequences of convergence is that provider compensation can become harder to identify. A recordkeeper might charge a relatively low explicit recordkeeping fee because it earns revenue elsewhere. That revenue could come from investments, managed accounts, participant advice, rollover IRAs, proprietary products, float income, affiliate arrangements or other financial services.
There is nothing inherently improper about a provider earning revenue from multiple services.
But plan fiduciaries need to understand the economics of the arrangement sufficiently to determine whether the compensation paid in connection with the plan is reasonable and whether conflicts may affect provider recommendations. When a service appears to be unusually inexpensive, or “free, ” the fiduciary should ask the question that is begged from such discount: How is the provider being paid? That question carries more legal weight than it once did. In Cunningham v. Cornell University, 604 U.S. 693 (2025), the Supreme Court held that a participant states a prohibited-transaction claim under ERISA §406(a) merely by plausibly alleging that the plan paid a party-in-interest for services – the plaintiff does not also have to plead that the reasonable-compensation exemption in §408(b)(2) fails to apply. That shifts the burden of proving a reasonable, necessary arrangement onto the defendant, and it means opaque, cross-subsidized compensation of the kind convergence produces is now markedly more likely to survive a motion to dismiss and proceed into discovery.
Proprietary Products and Conflicts
Convergence also creates natural opportunities for providers to recommend their own affiliated products, and this dynamic deserves particular attention from plan fiduciaries. A recordkeeper may offer its own managed-account service alongside its recordkeeping platform. An adviser may recommend investment products offered by an affiliated asset manager. A recordkeeping or investment platform may prominently feature proprietary investments among the options it presents. And a rollover representative, when a participant is terminating employment, may recommend an IRA that happens to be managed by an affiliated entity of the recordkeeper or adviser involved. Each of these arrangements sits close to the prohibited-transaction rules under ERISA §406.
Again, affiliation in and of itself does not automatically make any of these arrangements improper; providers are generally permitted to offer their own products, provided the arrangement is handled appropriately. What matters is that any resulting conflicts of interest should be identified and directly addressed rather than ignored or left unexamined. Plan sponsors, for their part, should make an effort to understand which parties benefit economically from the decisions that participants or fiduciaries are being encouraged to make, so that those conflicts can be factored into the plan’s oversight of the arrangement.
Can a Contract Simply Say the Provider is Not a Fiduciary?
Service agreements frequently contain provisions stating that a provider is not acting as an ERISA fiduciary except with respect to specifically identified services. Those provisions are important, but they do not necessarily end the legal inquiry. Because ERISA fiduciary status is functional, the actual conduct of the provider matters. A contract can allocate authority, specify responsibilities, identify accepted fiduciary duties and establish indemnification rights. A contractual disclaimer, however, may not protect a provider if its actual conduct constitutes fiduciary activity under ERISA. Because ERISA §3(21) status turns on function rather than label, a disclaimer that does not match reality does not just fail to protect the provider, it can leave the plan sponsor holding an unmonitored fiduciary relationship it never realized it had, with all the exposure under ERISA §404(a) and §405(a) that comes with it.
As such, plan sponsors should focus on the operational provisions of the agreement rather than simply accepting a broad fiduciary disclaimer. In entering into a contract with a service provider, the following questions should be considered: Who has discretion? Who makes the final decision? Who controls plan assets? Who interprets plan provisions? Who makes investment recommendations? Who can override another provider?
These questions often reveal more than meets the eye.
Artificial Intelligence Will Accelerate Convergence
AI may make traditional provider categories even less meaningful. Imagine a recordkeeping platform that uses AI to provide individualized investment recommendations. Is that still merely recordkeeping?
Suppose an asset manager provides an AI system that communicates directly with participants and recommends portfolio changes. Is the company acting solely as an asset manager?
If a payroll provider’s technology automatically recommends plan designs and investment options to employers, what functions is the provider performing?
The correct legal analysis should focus on the conduct rather than the technology. AI does not require or justify abandoning ERISA’s traditional functional framework. It makes that framework more important.
A Responsibility Map
One practical response to convergence is remarkably simple. Every plan sponsor and retirement plan committee should consider creating a responsibility map. This map should:
- List every major provider
- List its affiliates that interact with the plan
- Identify each function performed
- Identify which functions are fiduciary
- Identify the fiduciary appointing each provider
- Identify who monitors that provider
- Identify how the provider is compensated
- Identify significant conflicts
- Identify what participant information the provider receives
The responsibility map should then be analyzed against service agreements. This exercise frequently reveals gaps. A responsibility assumed to belong to the recordkeeper may actually remain with the employer. A service believed to be included may be performed by an affiliate under a separate agreement. A provider believed to be monitored by the adviser may actually be the employer’s responsibility. Those are exactly the kinds of ambiguities that should be resolved before a problem arises.
What Plan Sponsors Should Do Now
Plan sponsors should consider revisiting their provider relationships with convergence specifically in mind. They should identify all providers and important affiliates, determine precisely which parties have accepted fiduciary status, identify retained employer responsibilities. review direct and indirect compensation, identify proprietary products, review cross-selling arrangements, understand rollover programs, examine managed-account relationships, review participant-data rights, review cybersecurity responsibilities, determine who monitors each provider and make sure the contracts reflect the actual operation of the plan.
The Bottom Line
Convergence is not inherently problematic. It may produce better technology, lower costs, greater efficiency and more comprehensive participant services. But convergence makes transparency increasingly important. The more functions a provider performs, the more important it becomes to understand which hat the provider is wearing at any particular moment. The exposure is not theoretical. ERISA fiduciary-breach class actions have remained near record levels in recent years, and recent Supreme Court decisions have made it easier for plaintiffs to plead past a motion to dismiss on service-provider compensation theories. A committee that cannot produce a current, accurate account of who is performing which function, and who is monitoring whom, is not merely operating inefficiently. It is carrying litigation risk that current case law makes easier for plaintiffs to press than it was even two years ago.
