Alright. We’ve covered the WHY. We’ve covered the WHAT. Now it’s time for Part 3 in our Back to the Fiduciary Basics series…The WHO (No, not the band. Different Who.)
So far, we’ve established that fiduciary responsibility is real in the world of retirement plans. AND a 3(16) fiduciary takes on a long list of administrative and compliance tasks that otherwise fall squarely on the plan sponsor.
But here’s the natural next question: Who actually needs this?
So today, we’re talking about the real-life, everyday plan sponsors who are excellent candidates for 3(16) fiduciary services. No scare tactics. No doom-and-gloom. Just honest, practical scenarios.
First: A Gentle Reminder
Every plan sponsor is automatically a fiduciary. Some are totally comfortable with that. Some are… less thrilled once they realize what it actually means.
A 3(16) fiduciary isn’t about admitting defeat. It’s about recognizing when it makes sense to bring in a specialist.
So who tends to benefit most? Let’s talk about it.
1. The “I Did Not Sign Up for This” Business Owner
This is the owner who started a company to build houses, run a dental practice, manage a construction firm, or grow a tech startup.
They did not start it to:
- Interpret plan documents
- Track eligibility rules
- Monitor contribution timing
- Keep up with IRS/DOL updates
- Or figure out whether a loan request meets plan provisions
They just want to run their business, take care of employees, and offer a solid retirement plan. But they don’t want to become retirement plan compliance experts in the process.
Great candidate for a 3(16).
2. The Sponsor Who Hates Census Season (with a passion)
You know the annual census data request.
Compensation.
Hours.
Hire dates.
Termination dates.
Ownership data.
More compensation.
More questions.
It starts with:
“Can you send this spreadsheet?”
And turns into:
“Actually, we need this field too.”
“Wait, that payroll number doesn’t match.”
“Can you clarify this rehire date?”
If a plan sponsor:
- Dreads compiling census data
- Struggles with inconsistent payroll reporting
- Has multiple locations or complex compensation structures
- Frequently has errors show up during testing
They are a very strong 3(16) candidate.
Because inaccurate census data doesn’t just create inconvenience. It can trigger testing failures, corrections, and IRS headaches.
A 3(16) helps coordinate, review, and flag issues before they snowball. And with EGPS 360 – 3(16) fiduciary services, plan sponsors don’t have to worry about submitting a census at all. If given access, we’re able to pull this data accurately without plan sponsor involvement. They will need to review and confirm the data is accurate (after all, you know your business best), but we do all the heavy lifting.
3. The Sponsor Who’s Had a Close Call (or an audit)
Sometimes the “aha” moment comes after a late contribution deposit, a missed notice, a Form 5500 scramble, an IRS inquiry, an audit, or something similar.
That moment when someone says: “Wait… we were responsible for that?” Yes. Yes, they were. And that realization often leads to: “Maybe we shouldn’t be handling all of this ourselves.”
If a sponsor has:
- Filed corrections in the past
- Missed required notices
- Felt unsure about compliance decisions
They are a prime candidate for shifting administrative fiduciary responsibility. Not because they failed, but because they learned.
4. The Growing (and getting more complicated) Plan
What worked at 12 employees may not work at 85.
Growth is exciting and healthy. But growth also brings… complexity.
As companies expand, retirement plans tend to follow. That can mean:
- More eligibility tracking
- More payroll complexity
- Multiple divisions or locations
- Different employee classes
- More loan and distribution requests
- Complex compensation definitions
- Higher participation volume
None of that means something is wrong. It just means there are more moving parts. And more moving parts create more opportunity for small errors to have bigger consequences — like:
- Late deferral deposits
- Eligibility being applied inconsistently
- Notices going to the wrong group
- Contributions calculated off the wrong compensation definition
When you multiply even small mistakes across dozens (or hundreds) of participants, the impact scales quickly.
Meanwhile, the internal team — often a small HR or finance group — is juggling hiring, onboarding, payroll, benefits, and about 47 other priorities. Monitoring regulatory updates and reviewing every operational detail may not realistically fit into the day.
That’s where a good 3(16) fiduciary steps in; they take over the administrative heavy lifting. They take the tasks off the plan sponsor’s plate and formally handle the compliance responsibilities that come with them.
5. The Sponsor Who Simply Wants Fewer “Did We Do That?” Moments
This might be the most common one. The sponsor who says: “I just want to know it’s handled.”
They don’t want to guess about deadlines, worry about notice timing, approve transactions they don’t fully understand, or feel exposed if something goes wrong.
They want clarity, structure, and someone else responsible for the tedious tasks associated with their plan. That’s exactly what a good 3(16) is designed to provide.
Who Might Not Need a 3(16)?
Let’s be fair. If a sponsor:
- Has an internal benefits team experienced in ERISA
- Has structured compliance processes
- Is comfortable retaining administrative fiduciary liability
They may choose to keep it in-house, and that makes sense!
The Bottom Line: It’s About Fit
A 3(16) fiduciary makes the most sense when:
- Administrative complexity is growing
- Compliance confidence is low
- Past issues have exposed gaps
- Leadership wants liability shifted appropriately
- The plan sponsor wants to focus on running the business
- The complexity of the business complicates the plan
Because here’s the truth: The tasks exist whether someone enjoys them (or knows they are responsible for them) or not. And outsourcing to a great 3(16) fiduciary services provider takes retirement plan tasks (and compliance responsibility) off the plan sponsors’ plate.
Want more information? EGPS can help.
If you’re wondering whether you or your client might be a good fit for 3(16) support, we’d love to talk. Fill out the form below and we’ll send you more information and answer any questions you may have.
