ERISA 3(16) Fiduciary Services:
WHAT IS A PLAN FIDUCIARY?
Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. The fiduciary status is based on the functions performed for the plan, not just a person’s title. A plan sponsor is a fiduciary as well as the individual trustees. A fiduciary must put the participants’ and beneficiaries’ interests first by providing the highest standard of service and care. A plan fiduciary is expected to be extremely loyal to the plan and a breach of that fiduciary duty may involve personal liability.
Since the duty of a plan fiduciary is extremely important, plan sponsors need to hire plan providers that will help minimize that potential liability. One of the ways to minimize that liability, other than using best practices, is to hire a plan provider that will serve in a plan fiduciary capacity. Having a provider serve as a fiduciary is a great way for the plan sponsor to spread the responsibility and liability if they were to get sued by plan participants.
What types of Fiduciaries are out there to assist with qualified plans?
The first two types (ERISA Section 3(21) Fiduciary and ERISA Section 3(38) Fiduciary) relate to the investment options in the plan. ERISA 3(16) is the function that The Fiduciary Studio can be hired to provide.
ERISA SECTION 3(16) FIDUCIARY
TPS Ancillary Services, LLC dba The Fiduciary Studio
The “Plan Administrator” of a qualified retirement plan is defined in section 3(16) of ERISA. The Plan Administrator should not be confused with a “Pension Administrator” or a “Third Party Administrator” (TPA).
Unlike the TPA, the Plan Administrator has the following primary responsibilities:
- Ensures all required filings with the federal government are made in a timely manner (Form 5500, etc.)
- Signs the Form 5500
- Monitors deposits to ensure they are remitted in a timely manner
- Maintains integrity of plan document as it relates to plan amendments and changes
- Hires plan service providers if no other fiduciary has that responsibility
- Ensures that the required disclosures are provided to plan participants
- Fulfills other responsibilities as set forth in plan documents
- Assists in interpreting the plan document
- Administration of Loans (develops procedures and process)
- Distribution of benefits as follows:
- Administration of QDROs (develops procedures and process)
- Administration of Hardship Withdrawals
- Administration of all other Withdrawals
The ERISA 3(16) administrator is a plan fiduciary and assumes the liability that comes with it. However, they have no direction in selecting plan investments.
As a TPA, The Pension Studio performs certain “ministerial functions” for the plan that are not considered fiduciary duties.
For example, if a service provider performs plan administration functions based on established plan policies, rules, procedures, etc. that were made by others, the service provider does not have discretionary authority over the plan management or administration. Some examples of ministerial functions are:
- Application of the plan’s eligibility rules
- Preparing the Form 5500
- Collecting contributions
- Preparing benefit statements
- Making recommendations to someone that has decision-making authority
The TPA is delegated these responsibilities, but the plan sponsor bears the responsibility of carrying out the action.
What makes an ERISA 3(16) fiduciary important?
Contrary to common belief, most plan mistakes that occur have little or nothing to do with the investments or the investment manager, but instead, involve plan administration issues. Some of the top mistakes that occur are:
- Plan document not updated to reflect law changes
- Failure to follow plan terms
- Not using the plan’s definition of compensation for deferrals and allocations correctly
- Employer matching contribution errors
- Not satisfying non-discrimination tests (ADP & ACP)
- Not notifying all eligible employees of their opportunity to defer
- Not complying with IRC Section 402(g)
- Not depositing employee elective deferrals in a timely fashion
- Not conforming to the plan document and IRC 72(p) for participant loans
- Hardship distribution issues
- Not making required minimum contributions for top-heavy plans
- Not filing a Form 5500 series return and not distributing a Summary Annual Report to all participants
By hiring a competent ERISA 3(16) fiduciary, plan sponsors are insulating themselves against these errors to a greater level than just hiring a TPA. The Fiduciary Studio would be named in the Plan Document as the Plan Administrator.
Clients under this service model are tracked closely in regards to ensuring that all functions are carried out at the employer level. Policies and procedures for every administrative function are carefully implemented.
Who Should Hire an ERISA 3(16)?
- Plan Sponsors that lack the time to ensure all administrative functions for their company retirement plan are carried out
- Plan Sponsors that operate with lean internal staffing and want to ensure that the plan operates correctly
- Plan Sponsors concerned about fiduciary liability
- Plan Sponsors with staff that have expertise in other functions pertaining to HR, but not necessarily ERISA
- Plan Sponsors with newer employees still learning about ERISA and their responsibilities
What is the cost?
Clients are quoted individually and fees are based on several factors:
- Number of employees
- Distribution functions in regards to notices
- Plan features and level of complexity
The minimum annual cost is $750 and could reach a total in excess of $10,000 for larger participant cases in which The Fiduciary Studio is responsible for all mass mailings and postage expenses.
CLICK HERE to view a PDF of our 3(16) Fiduciary Brochure