There’s greater interest in 3(16) fiduciary services from plan sponsors. Companies from a variety of industries rely on Definiti to be a co-fiduciary and deliver 3(16) plan administration.
Offering your staff a retirement plan, such as a 401(k) or cash balance plan, is a smart thing to do. Studies show that, collectively, people need to save more for retirement. Most employees expect to see a retirement plan, and they may view a company without one as less desirable than the employer next door who does.
What employees don’t know (or care about) is the administrative burden that comes with an employer-sponsored retirement plan. The volume of those duties only seems to grow as businesses try to get by with leaner teams, and more complicated regulations emerge every year or two from the government.
Another factor is that many retirement plan sponsors, especially those working at smaller companies, already have a full-time day job. They could be the owner running the business or a manager overseeing a busy department. They know spending time on the retirement plan benefit is critical, but other work often calls them away.
The myriad administrative tasks that come with retirement plans are a big reason companies hire third-party administrators (TPAs). And for those retirement plan sponsors who want to offload another chunk of the administrative burden — the fiduciary-related duties — they turn to a 3(16) plan administrator.
Who is a fiduciary for a retirement plan?
It’s any person (individual or corporation) who exercises discretionary authority or control over the management or disposition of plan assets. (Here’s what the IRS says about plan fiduciaries.)
Interest in 3(16) Fiduciary Service Providers is Growing
At Definiti, we’re seeing greater interest in 3(16) plan administrator (a.k.a. plan co-fiduciary) services from the retirement plan sponsors we work with. Companies of varying sizes and from surprisingly different industries now rely on our 3(16) plan administration services.
As more financial advisors take on fiduciary roles themselves, they’re seeing the plan sponsor’s fiduciary responsibilities in a new light. Our advisor contacts are introducing 3(16) plan administration outsourcing to more clients (even those with start-up retirement plans) and asking them to consider the service.
Manufacturer’s Decision to Outsource 3(16) Plan Administrator Pays Off
The top benefit of choosing a 3(16) services provider is they take over critical administrative duties and assume nearly all fiduciary liability. [One fiduciary role the retirement plan sponsor always retains is choosing the 3(16) fiduciary services provider.] The plan sponsor can stop spending their time on loan and distribution approvals, sending required participant notices, signing and filing the annual Form 5500, uploading payroll contributions to the recordkeeper on time and more.
We introduced one of our clients, a global plastics manufacturer, to our 3(16) plan administration services a year ago. The company was already using Definiti’s TPA services, but their financial advisor [the plan’s 3(38) fiduciary*] suggested they also add a 3(16) plan administration. (This advisor is such a firm believer in 3(16) outsourcing and the fiduciary protection it provides that he recommends it to many clients.)
The manufacturing company plan sponsor is responsible for a 401(k) with about 100 U.S.-based participants. With a small, two-person human resources team, the plan sponsor was consumed by other responsibilities and didn’t want any plan-related task to fall through the cracks.
Once the plan sponsor gave the green light to partner with Definiti for 3(16) plan administration, the process of getting the service in place took just a few weeks. Today, the small human resources staff is enjoying a lightened administrative load with virtually all fiduciary responsibilities outsourced, resulting in more time they can spend on other employee matters.
Construction Industry Company With 16 Participants Chooses a Co-Fiduciary
Another one of Definiti’s TPA service clients just recently added a 3(16) plan administrator. The company president said her human resources lead had just given notice and, instead of hiring another HR person, she wanted to outsource the fiduciary responsibilities. Calling her strategy “working smarter, not harder,” the president said the cost of 3(16) plan administration was a fraction of the cost of an HR person’s salary and benefits.
What’s the Difference Between TPA Services and 3(16) PLAN Administrator?
With the TPA and 3(16) fiduciary services providers both focused on administering day-to-day responsibilities for the retirement plan, you may be wondering if the roles overlap at all. They don’t at Definiti. Our TPA services and 3(16) plan administration duties are delivered side by side.
More broadly, you can think of the partnership between the TPA and the 3(16) plan administrator as a hand-in-glove relationship, where two teams work together to keep the retirement plan compliant and reduce the plan sponsor’s workload.
Who Specifically Benefits From 3(16) Plan administration Services?
If you’re considering the value of 3(16) plan administration services, here’s how Definiti helps our clients avoid common situations you may also have experienced:
- Too small of a benefits staff (or too many junior team members) to manage plan-related responsibilities
- Confusion about which plan participant notices need to go out and by when
- Failure to enroll participants on time and worries about having to do another correction
- Missed the Form 5500 filing deadline because they forgot to sign and submit the document
- Failed compliance testing in the past and need assurance it won’t happen again
We’re Here to Help
Keeping a retirement plan compliant is often complicated and demanding. If you juggle other responsibilities within your company, the hours you need to devote to plan administration could be limited. The fiduciary duties of being a retirement plan sponsor are weighty, too.
Here’s the good news: You can outsource a significant amount of the retirement plan administration responsibilities to a TPA and 3(16) plan administrator.
Do you need someone to help carry the load of your plan sponsor responsibilities? Or are you a financial advisor who wants to learn more about how Definiti can help your clients? Let’s start the conversion — call 1-(888)-912-3653 or email salessupport@definiti.com
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