Despite the Way Our Industry Sells Them, 3(16) Solutions Are Not Black and White
The term 3(16) Fiduciary has been a hot topic in the industry for the past few years, and for good reason. In 2020, the Employee Benefits Security Administration (EBSA) found violations of ERISA in approximately 70% of plans investigated and over $2.6 billion in failures was recovered. Many plan sponsors have become more aware of the nuances and requirements of running a benefits program and want help navigating the retirement waters.
One phenomenon CRS has observed is that the discussion around 3(16) Fiduciary services tends to start with simply, “We can serve as a 3(16) Fiduciary for you and the fee is only $4,000 a year.” This is a terrible approach and doesn’t tell the full story, undermining the immense value of such services to plan sponsors.
A Look at What 3(16) Services Really Mean
We’re going to get a bit technical, but bear with us. The Named Fiduciary of a plan, as defined under Section 402(a) of the Employee Retirement Income Security Act of 1974 (ERISA), is the fiduciary with the authority to control and manage the operation of the plan as named in the plan document.
Although the plan sponsor traditionally serves as the plan’s Named Fiduciary and Administrator, there is nothing under ERISA that requires the employer to serve in this capacity alone. As a matter of fact, the law and the Department of Labor encourage plan sponsors to consider hiring experts to fulfill various obligations and transfer its responsibilities to an individual or firm that specializes in such matters.
The Role of a 3(16) Fiduciary
There are hundreds of different required responsibilities that a 3(16) Fiduciary may handle, including but not limited to the following:
- Submit payroll to the plan’s recordkeeper each pay cycle,
- Monitor the timeliness of deposits throughout the year,
- Reviewing, approving and signing all loans and distributions,
- Maintaining close oversight of the plan’s recordkeeper,
- Review and confirm accuracy of all compliance tests,
- Ensure qualified plan audit report completed and attached to submission, as applicable,
- Review for accuracy, sign and file the annual 5500, eliminating the need for someone at the company to sign & file the Form 5500.
The CRS Difference
The duties of a 3(16) Fiduciary are not a one-size-fit-all solution like most firms are positioning the offering.
When clients ask us about fulfilling 3(16) Fiduciary duties, we begin by asking them exactly what administrative tasks are costing too much time or are a liability concern for them. Once we understand where the pain points are, we create a specialized fee quote that specifically addresses the administrative requirements they want help with.
This consultative approach not only helps a plan sponsor understand exactly why they are hiring us, but also what they are paying us to do. We are able to uncover these anxieties only when we probe with the right questions because many times clients don’t know what to ask for. This is particularly important to parse out what’s most needed to ensure the plan runs smoothly and set proper expectations.
Download our 3(16) Fiduciary Checklist
CRS has created a special checklist to help plan sponsors and financial advisors determine if 3(16) Fiduciary Services may be right for a retirement plan.
Download the free brochure, 3(16) Fiduciary Services Client Assessment, here>>.
Alternatively, if you prefer to have CRS assess your needs or that of your clients, please call your local sales representative. If you aren’t sure who to call, contact us by calling 800-577-1152 (Option 2).
Michael Davis has been in the retirement plan industry since 1994 and is our Vice President of Sales at CRS. Michael can be reached via email at firstname.lastname@example.org.