Confusion still reigns over 3(38), 3(21) and 3(16), but The Standard is here to help. The Portland, Oregon-based record keeper with a $20 billion book of business has offered 3(38) and 3(21)-like services since 2001, even before they were known by the numbers, according to Dan Hall, The Standard’s vice president of sales.
“If you’re a 401k record keeper competing on price, you have a problem,” Hall said from the floor of the 2017 NAPA 401k Summit in Las Vegas. “You’ll have to find your value-add, which we did in a big way. In addition to the two others, we were also early to 3(16), which we began offering four years ago.”
Noting the firm has “smart people that step into the right thing,” he added that too many advisors and sponsors simply “check a box” with 3(16), “but if they understand what we do, they will buy us.”
What they do, according to Joel Mee, retirement plan consultant with The Standard, is offer true consulting services, along with core TPA functions as well as oversight and review.
“We allow the plan sponsor to outsource as much to us as possible, which is how we differentiate ourselves,” Mee explained. “We can take on and act as a delegated 3(16) administrative fiduciary.”
There is still a “huge lack of awareness” on part of the plan sponsors as to the 3(16) responsibility, Mee noted.
“Our campaign it is the elephant in the room, because too many 401k advisors and plan sponsors don’t get the responsibilities or consequences of not having this. A human resources department likes the idea of outsourcing it because of the time savings, and a CFO likes the protection.”
It all comes down to the contract language, Mee said.
“We will hold-harmless and indemnify those other parties for these [3(16)] functions. We tell them they might have someone protecting them on the investment side, but we can protect them on the administration side. That’s been winning business.”
Both Mee and Hall noted four key areas that risk fiduciary failure, and can also be ridiculously time consuming, especially for smaller firms:
- The approval of participant-level transactions.
- Pulling year-end compliance and 5500 information.
- Determining eligibility and getting new employees to participate.
- The fulfillment of required notices, which can be as many as 12 or 15 disclosures for each employee in a given year.
“This last one is important,” Mee argued. “This is where we’re extremely powerful. We take responsibility for these actions and if something goes wrong, it’s on us and we write the check.”
“We won’t ever turn away business, but a dentist office is not as appealing with 10 people as opposed to a dentist office with 10 locations,” Hall concluded. “Fifty to 500 employees is right for us and the service we offer. Any less than that and a designated person can probably handle it; any more than that and the business will probably have a professional HR department.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
