I fear that this blog post might come off sounding very soap-boxy, but to be totally honest I am pretty pissed. The concept of a 3(16) Fiduciary at it’s core is such a cool thing, but I fear “The Industry” is in the process of ruining it. An ERISA Section 3(16) Fiduciary acts as the plan administrator, responsible for managing the day to day operations of the plan. What specifically are these tasks or services provided by a 3(16)? They are easy to isolate if you just start from the beginning of a compliance year or plan installation date and work your way to the end of the year. I threw together a short list of potential 3(16) responsibilities below to give you a general idea of what we are talking about here.
My problem lies with the industry as a whole and the variety of 3(16) solutions that are popping up everywhere. The differences in these solutions center around the actual contracts and what these so-called 3(16) Fiduciaries will actually be responsible for. In an attempt to take advantage of a sales or marketing opportunity many within the industry are creating cheaper versions of a 3(16). They have lowered the cost through contractual caveats and they are only taking responsibility for a minimal number of tasks/services.
In a desire to sell more plans, these 3(16) imposters have twisted what was originally intended to be this great idea, an opportunity for premium service and responsible oversight. The result being a watered down version that lacks the necessary value. It’s a real shame.
If you are a Plan Sponsor or Plan Advisor consider yourself warned and make sure you pay attention to the details on the contract and know exactly what you are signing up for. If the cost is too low there is a good chance that the amount of 3(16) services on offer are limited and in my opinion that kind of defeats the whole purpose of this thing. 3(16) BUYERS BEWARE!
A SHORT/SIMPLE LIST OF 3(16) RESPONSIBILITIES
- determine eligibility of employees
- hire and retain plan professionals that assist with administering the plan
- maintain records
- understand and carry out plan rules
- file IRS 5500
- fidelity bond maintenance
- distribute participant notices
- review loans and distributions
- timely deposits
- reconciliation of record keeper and payroll
and now the plugs
1. Don’t forget to check out the latest episode of Retireholi(k)s at http://www.retireholiks.com
2. Plan Design Consultants is re-inventing what it means to be a TPA.
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