Recently, there has been a lot of discussion about whether plan sponsors should contract with their administrative providers for section 3(16) fiduciary services. Outlined below are the different types of fiduciary services available to plan sponsors.
ERISA Section 3(16) Fiduciary Services
A new offering in the marketplace, some third party plan administration firms (TPAs) are willing to be named as ERISA Section 3(16) plan fiduciaries for various plan administration duties. Typically, the different administrative services that these TPAs are willing to serve as fiduciaries for are listed. As a result, the type and quality of 3(16) offerings varies by provider.
For example, there are some TPAs that are willing to serve as 3(16) fiduciaries for distributions and loans but are unwilling to make a determination on whether a Domestic Relations Order is qualified. As a result, at this time the marketplace is a bit uneven in terms of 3(16) fiduciary services.
Plan sponsors should keep in mind that choosing a 3(16) fiduciary to be responsible for some or all of their plan administration duties does not relieve them of all fiduciary responsibility.
ERISA Section 3(21) Fiduciary Services
An ERISA Section 3(21) fiduciary generally provides investment advice to plan sponsors. Typically this takes the form of mutual fund recommendations in 401(k) plans. A 3(21) fiduciary shares fiduciary responsibility with a plan sponsor for any recommendations that are acted upon. Most 401(k) retirement plan sponsors who have retained an investment advisor who is a fiduciary, work with a 3(21) advisor.
ERISA Section 3(38) Fiduciary Services
An ERISA Section 3(38) financial advisor has discretionary authority over plan assets. He/she can buy and sell investments for a retirement plan without plan sponsor knowledge or approval. Section 3(38) financial advisors often are a best fit for non-employee directed retirement plans, like defined benefit plans.
Although there are fairly uniform product offerings for ERISA Section 3(21) and ERISA Section 3(38) fiduciary services, the marketplace for ERISA Section 3(16) fiduciary services is evolving. There are significant differences in service offerings, the quality of those offerings and questions about the ability of some TPAs to financially support their fiduciary responsibilities in the case of a fiduciary breach. Plan sponsors should carefully review ERISA Section 3(16) service offerings with their legal counsel before signing a service agreement.
Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC (lawtonrpc.com), an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at firstname.lastname@example.org or 414.828.4015.
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