It’s tough enough raising awareness and adoption of ERISA 3(38) and 3(21) services among plan sponsors and 401k advisors.
Indeed, Pete Swisher, Pentegra’s senior vice president and national sales director, recounts how—until recently— advisors would ask him about “3(31) and 3(28)” services.
But what about the lonely little brother, 3(16)? Is it getting more recognition?
A new report from the MEP and PEP powerhouse aims to gauge retirement plan advisor attitudes toward ERISA 3(16) fiduciary outsourcing.
The Pentegra survey “shows encouraging signs that understanding the ins and outs of 3(16) outsourcing are becoming more commonplace.”
In addition, while most employers are unaware that they can choose not to be the fiduciary for plan administrator duties, survey evidence shows that they are learning they can outsource those duties.
“Retirement plan administration has become increasingly complex and laden with compliance burdens,” Richard Rausser, senior vice president of Client Services with Pentegra, said in a statement. “For many employers, the commitment of time and energy is overwhelming and too often distracts from the more critical responsibility of running a business. As an advisor, it is a distraction from your business as well.”
Taking full responsibility as a 3(16) plan administrator, he added, can be a tall order. What is, and is not, covered is specifically spelled out in the contract.
“But the survey shows that employers and advisors alike are increasingly becoming aware that outsourcing is a prudent, safe option that can work to the benefit of all parties.”
Highlights of the report include:
- Nearly all (over 80 percent) of advisors surveyed are familiar with 3(16) outsourcing
- 84 percent of advisors surveyed are considering recommending 3(16) administrative services
- Just over half (56 percent) of advisors’ clients are receptive to 3(16) outsourcing services
- When asked what makes outsourcing services most attractive to clients, the number one answer was that it “mitigates retirement plan risks”
- 75 percent of advisors surveyed are actively discussing 3(16) fiduciary outsourcing with their clients
Under the guidelines of the Employee Retirement Income Security Act of 1974 (ERISA), a Section 3(16) fiduciary acts as the plan’s administrator.
Responsible for managing the day-to-day operations of the plan, the ERISA 3(16) Fiduciary is also responsible for all decisions related to a plan, unless otherwise delegated to another fiduciary.
Fiduciary outsourcing involves the transfer of legal responsibility for a retirement plan from an employer to an institutional fiduciary.
By hiring a competent 3(16) fiduciary, plan sponsors can insulate themselves against making the types of errors that can carry significant penalties both for the fiduciary/employer and the company itself.
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.
