3(16) Services: Looking Beyond the Label

For retirement plan advisors, the 3(16) fiduciary conversation is about more than outsourcing administrative work. It’s an opportunity to help clients manage fiduciary risk. While administrative tasks can be delegated, fiduciary responsibility transfers only to the extent specifically accepted by the provider. Selecting a provider remains a fiduciary act, and services, coverage and costs can vary widely. Advisors can help employers see exactly what responsibility is being accepted and what remains with them.

Understand the Three Flavors of 3(16)

Most 3(16) providers fall into one of three categories:

• Administrative support (non-fiduciary)
• Limited scope 3(16) fiduciary services
• Fully named Plan Administrator/broad 3(16) fiduciary services

Scope of service matters, including administrative services performed, which carry fiduciary responsibility, and whether the commitment is documented in writing.

The distinction — and documentation — are important because tasks such as eligibility tracking, participant notices, loans, hardships, QDROs, compliance testing and Form 5500 filing can create operational strain and liability exposure.

Ask Tough Questions

To help you and your clients compare 3(16) offerings, ask detailed questions about roles, responsibilities and experience.

• Which administrative services do you provide, and for which do you accept fiduciary responsibility?
• Do you outsource any of the 3(16) responsibilities? If so, will your vendor have access to sufficient data in a timely manner?
• Do you document your fiduciary commitment, covered liability and indemnification terms in writing?
• What processes, checks and balances help ensure your fiduciary obligations are met?
• What fiduciary liability protection or insurance do you carry?
• What are your costs by service, and can you provide a sample contract?
   

Evaluate Contracts and Liability

The contract is where the promises become enforceable. Advisors and employers should ensure covered services, liability limits, indemnification, insurance coverage, provider experience and internal controls, to name a few, are covered in writing. A service that sounds comprehensive in a sales conversation may be far narrower once outlined in contract terms.

When evaluating providers, be sure to consult the plan document and any named fiduciary provisions that must be considered. If the plan adds a new named fiduciary, the document should reflect that change clearly. The 3(16) provider should match the plan’s actual risk, workload and governance needs. As the advisor, you can help your clients understand that the decision can move from “Who can take tasks off our plate?” to “Who can help us manage responsibility with clarity, accountability and confidence?”

The Standard can help you evaluate fiduciary support options. Contact your sales representative to learn more.