A retirement plan administrator has a fiduciary responsibility to the plan participants, which means that the administrator must manage the retirement plan for the exclusive benefit of plan participants. Specifically, this means that plan assets must be invested so that:
Are you a fiduciary? Generally, since you'll be sponsoring the plan, you'll be liable as a fiduciary. There are, however, two ways to escape liability for investment decisions. The first is to contract with a qualified investment advisor and turn over all investment decisions to that person or organization. You'd still be liable for the advisor you selected, if that selection is made carelessly, but at least you would not be liable for the investments themselves.
The other way to be relieved of fiduciary liability is to allow your employees to direct their own investments (e.g., through a mutual fund company). There are a number of special requirements you would have to meet, but if you comply with those requirements, your employees will be responsible for their own investment decisions.
Basically, the liability question comes down to the relationship between the
parties. If you want to turn over everything to the administrator and have it
decide if a claim is covered by the plan, the administrator would be a fiduciary
to the plan. On the other hand, if you want to retain control and determine
eligibility for benefits, while the administrator just handles the paperwork,
the administrator will be a nonfiduciary service provider. The usual case falls
somewhere in between, and that's fertile ground for lawsuits.