Looking for ways to minimize the fiduciary liability that comes from offering their employees a retirement plan, plan sponsors have historically turned to firms offering 3(21), 3(38) and, most recently, 3(16) expertise. Unfortunately for these sponsors, debate within the industry has raged over which approach is best and whether some of these service providers have the right qualifications.
The Center for Due Diligence spotlighted the issue at one of the sessions at its annual conference in Texas last fall.
Among the three, 3(16) fiduciaries are the latest to come into the marketplace.
Typically, these are third-party plan administrators that offer to assume fiduciary risk for a range of administrative duties, which might include everything from handling loans and distributions to choosing and evaluating trustees, investments and the plan’s advisor.
Griffith also cautioned that oversight may be required of an employer’s records on everything from payroll to hiring and firing. “A third party will have so many caveats on 3(16) agreements (because of all those records) that the employer (ends up) doing everything anyway,” he said.
And, again, even if a sponsor hires a 3(16) fiduciary, that sponsor is still responsible for making sure that the 3(16) is providing the best service possible for plan participants.
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