By Mark Olsen, Managing Director at PlanPILOT
Managing a retirement plan means the stakes are high for employers tasked with the fiduciary responsibility of overseeing their retirement plans. The complexities of compliance with the Employee Retirement Income Security Act of 1974 (ERISA), coupled with the potential for severe financial repercussions due to administrative oversights, and more recently the multitude of mandatory and voluntary provisions under SECURE 2.0, have led many to consider hiring a 3(16) plan administrator.
This guide is designed to shed light on the crucial aspects of understanding your fiduciary responsibilities, how a 3(16) plan administrator can help you, as well as mitigate risks. While this choice may not be right for every retirement plan, it could be of tremendous value to those wishing to add support to their plans while mitigating risks and seeking to improve the financial well-being of plan participants.
Understanding Fiduciary Responsibilities
As a fiduciary, the plan sponsor is entrusted with acting in the best interests of the plan participants and their beneficiaries. This encompasses a range of duties, including verifying that plan fees are reasonable, that the plan’s operations adhere strictly to the terms outlined in its documents, that investments are prudently diversified to minimize the risk of large losses, and that all decisions regarding the plan are made with the participants’ best interests in mind.
The significance of these responsibilities cannot be overstated, as failing to meet them can lead to poor outcomes for participants as well as legal ramifications for those responsible for the plan. Recent surveys, such as one conducted by Alliance Bernstein in 2019, reveal a concerning decline in fiduciary awareness among plan sponsors, with only 44% of respondents believing they are a fiduciary—when in fact all of them are. This trend underscores the critical need for plan sponsors to fully comprehend and embrace their fiduciary duties.
What Is the Role and Value of a 3(16) Fiduciary?
Tasked with the day-to-day operational responsibilities, a 3(16) fiduciary shoulders the complex burden of ensuring compliance with the Employee Retirement Income Security Act of 1974 (ERISA), the Internal Revenue Code, and the plan’s own documents. This includes critical tasks such as managing payroll data for accuracy, determining employee eligibility, overseeing plan enrollments and distributions, and ensuring timely and accurate filing of Form 5500.
By taking on these duties, the 3(16) fiduciary significantly alleviates the administrative load on employers, enabling them to dedicate more time and resources to their core business functions. Beyond mere administrative relief, the value of a 3(16) fiduciary lies in their knowledge, skill, and diligence in navigating the regulatory landscape, which in turn minimizes the risk of costly errors, mistakes, and compliance issues. This protective oversight offers employers comfort, knowing that their plan’s administration adheres to the highest standards of fiduciary responsibility and operational integrity.
Enhancing Plan Efficiency and Participant Satisfaction
By taking over the intricate administrative tasks, a 3(16) administrator works to create a smoother, more streamlined operation—from enrollment to distributions and loans to education. This efficiency not only eases the employer’s burden but also elevates the participant experience, making interactions with their retirement savings more straightforward and less stressful. As participants find the plan more accessible and understandable and gain useful education on topics that many plan sponsors don’t currently offer, their engagement and savings behaviors can improve, which could contribute to their overall financial wellness.
Choosing the Right Services Provider
Choosing the right 3(16) fiduciary services provider is a decision that requires careful consideration, as the provider plays a crucial role in the success and compliance of your retirement plan. When evaluating potential providers, it’s essential to assess their experience, reputation, and the breadth of services they offer. Look for a provider with a proven track record of effectively managing plans similar in size and complexity to your own, and confirm they have robust processes in place for handling the administrative tasks and compliance requirements of retirement plans.
It’s also important to understand the specific responsibilities the provider will assume and how they will communicate with you about your plan’s status and any issues that arise. Additionally, consider how the provider’s services can integrate with your existing payroll and human resources systems to facilitate a seamless operation.
Finally, evaluate the cost of their services in relation to the value they provide, keeping in mind that the right 3(16) fiduciary can save your organization significant time and resources, and potentially shield against costly compliance mistakes. Taking the time to select a 3(16) fiduciary services provider that aligns with your company’s needs and values helps maintain the long-term success and health of your retirement plan.
Elevate Your Plan Management: Partner With a 3(16) Fiduciary
Are you navigating the complexities of managing your retirement plan all alone? If so, it might be worth considering teaming up with a partner to help you elevate your plan and reduce your responsibilities. At PlanPILOT, our company is focused on helping you navigate retirement planning issues so you can potentially achieve better outcomes.
If you’re ready to consider a 3(16) plan administrator, we’d love to see if we can help. Reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can tailor our services to meet your unique needs.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.