How delegation can help manage fiduciary liability for plan sponsors 

At the same time, plan management — from investment menus and fee structures to operational requirements — has become more complex, stretching the capacity of traditional committee based decision making.

This leaves plan sponsors in a challenging position, working to improve the benefits offered to plan participants while seeking to manage the associated fiduciary risks.

These are not abstract concerns. Fiduciary litigation increased by 35% in 2025 — making it the second highest year for the number of lawsuits filed against defined contribution plans in history.² Fiduciary risk can be material for plan sponsors, but it is possible to manage it while seeking greater performance, efficiency, and even potential cost savings for your plan.

We regularly face questions from plan fiduciaries about how to manage fiduciary risks in DC plans. In this paper, we’ll explain how a delegated approach to plan management can help to manage risk and support long-term objectives.

While litigation risk tends to capture the most attention, it’s only one part of the wider fiduciary risk landscape. Sponsors must also contend with potential liabilities from Department of Labor (DOL) audits, compliance failures, operational errors requiring correction, and reputational damage arising from governance shortcomings.

In defined contribution plans in particular, fiduciary liabilities have arisen or increased as plan administration has grown more complex over time.

For example, the selection and ongoing monitoring of investment options, oversight of target date funds used as qualified default investment alternatives, or the reasonableness of fees paid by participants are areas of potential liability.

Operational issues such as late or incorrect contributions, testing failures, or delays in correcting errors may also elevate fiduciary exposure and, in some cases, trigger regulatory scrutiny.

Fiduciary responsibility cannot be eliminated entirely. Plan sponsors retain oversight obligations for the fiduciary services provider regardless of the governance model they choose. However, the way in which responsibilities are structured and delegated can materially affect where fiduciary liability ultimately sits.

Under ERISA, plan sponsors are permitted to delegate certain fiduciary responsibilities to qualified third parties. When done properly, delegation can shift decision-making authority — and the associated fiduciary liability — for those decisions to the delegated fiduciary.

This distinction has become increasingly important as investment menus, regulatory expectations, and participant needs have grown more complex.

Investment committees are often required to make decisions across a wide range of highly technical issues, while meeting infrequently and balancing fiduciary duties alongside full-time corporate roles. In this environment, delays in decision-making or gaps in documentation could potentially increase fiduciary exposure over time. This can have a meaningful impact. Research shows that slower decision making can lead to a 1-1.4% shortfall in returns due to poorly timed purchases and sales.³

Outsourcing assignments often include a combination of discretionary management, consulting advice, and other services that may or may not be “fiduciary” in nature; however, an outsourced chief investment officer (OCIO) model is one way that sponsors are using delegation to strengthen fiduciary risk management specifically.

While the precise scope of delegation varies by mandate, OCIO arrangements typically involve either the appointment of a discretionary investment fiduciary (3(38) fiduciary) responsible for implementing and managing key aspects of the investment program, or delegation of both 3(16) plan administrative and 3(38) investment responsibilities to a 402(a) fiduciary such as a Pooled Employer Plan (PEP) provider.

The OCIO model can offer a range of potential benefits to plans — both from the perspective of operational improvements such as more robust monitoring and more timely portfolio adjustments, and in the form of risk management.

OCIO providers assume responsibility for selecting, monitoring and, when necessary, replacing investment managers and options. In our experience, non-delegated plans take on average three investment committee meetings to replace an underperforming manager, which can mean nine months or more of potential market impacts before a new team is in place.

An OCIO can move fast to cut and replace underperformers, helping to reduce the risk that underperforming or unsuitable investments remain in place for extended periods due to slow committee processes. Faster decision-making can be critical, as the duration of a potential fiduciary breach often influences the magnitude of any resulting liability.

OCIOs also typically take responsibility for selecting and assessing the suitability of target date funds, shifting fiduciary liability for those decisions away from the sponsor — an increasingly critical offer, as ERISA litigation in recent years has tightened its focus on target date funds.

As mandates expand beyond pure investment management, many now include elements of operational oversight and coordination. Improved operational governance may reduce the likelihood of compliance errors requiring correction or drawing regulatory attention. While operational delegation does not eliminate fiduciary responsibility, it may meaningfully manage the risk of avoidable noncompliance.

A common thread across fiduciary risk management is the importance of transparency and documentation. Clear reporting, full fee disclosure, and well-documented decision-making processes strengthen a plan’s overall governance framework.

Transparency can be good for overall fund goals. Robust documentation and clear disclosure make it easier to demonstrate that fiduciary obligations have been met and to audit processes for continual learning and improvement.

In this respect, OCIO arrangements can support better governance discipline by embedding consistent processes, regular reporting, and formal decision frameworks into the plan’s operating model.

Beyond transparency, risk management, and pursuing long term objectives, some providers can leverage their scale to secure cost savings for plans. OCIO providers often do this to negotiate and seek lower investment management fees and access more cost-effective vehicles. Alongside the cost outcomes themselves, ongoing monitoring and documentation of fees play an important role in demonstrating a prudent fiduciary process.

Fee savings and governance efficiencies achieved through an OCIO model may, in some cases, offset the cost of outsourcing itself, potentially reducing the overall burden on the plan or its sponsor.

It is important to be precise about what delegation and OCIO models can and cannot achieve. Delegation is not about avoiding responsibility; it does not eliminate fiduciary risks, nor does it absolve sponsors of their duty to monitor service providers. Rather, it helps to ensure key fiduciary decisions are made by parties with the appropriate expertise, resources, and governance frameworks to manage them on an ongoing basis.

Delegation contractually shifts the fiduciary responsibility and liability for properly delegated fiduciary decisions from the plan sponsor to the OCIO provider. While the plan sponsor will always retain a residual fiduciary responsibility, ERISA clearly contemplates and allows for the delegation of fiduciary duties, which may support more favorable outcomes.

One practical indicator often cited by sponsors is fiduciary liability insurance. Insurers assess governance structures, delegation models, and decision-making processes when pricing coverage. Our latest DC survey found that 55% of plans saw a decrease in liability insurance costs since employing an ERISA 3(38) or 402(a) fiduciary.⁵

As fiduciary expectations continue to rise, plan sponsors are being asked to manage an increasingly complex set of responsibilities with limited governance capacity. In this environment, effective delegation is less about relinquishing control and more about strengthening oversight.

By thoughtfully structuring fiduciary responsibilities and delegating appropriate decisions to qualified fiduciaries, sponsors can focus their efforts on strategic oversight rather than day-to-day execution.

While fiduciary risk can never be eliminated, governance models that emphasize expertise, transparency, and disciplined decision-making can play a meaningful role in managing it more effectively.

See important notices

_{¹ Mercer Voice of the Plan Sponsor: 2025 DC Practices Survey, July 2025. Responses were provided by HR leaders representing 225 companies in the U.S. Responses provided were provided by decisionmakers for their organization’s DC plan. It is important to note they did receive a form of compensation from the survey provider for participation. It is important to recognize that survey results are subject to inherit limitations and uncertainties. The survey results may not capture all relevant factors or market conditions. These results should not be constructed as personalized investment advice.}

_{² ERISA Fiduciary Litigation in 2025: Plaintiff Law Firms Continue the Frenetic Pace, With Broader Allegations Against Both Retirement Plans and Health Plans. Encore Fiduciary, February 9, 2026.}

_{³ Morningstar: “Mind the Gap”, July 2022.}

_{⁴ Mercer Voice of the Plan Sponsor: 2025 DC Practices Survey, July 2025.}

_{⁵ Mercer Voice of the Plan Sponsor: 2025 DC Practices Survey, July 2025.}