3(16) fiduciary service definitions vary widely across the retirement plan marketplace. To ensure business owners are getting the services they want and need, it’s important they ask the right questions as they navigate the buying process. To help, we’ve compiled a list of questions for employers to ask potential 3(16) fiduciaries on the journey to find the right provider.
What services are covered in their standard fees? Do they tackle all aspects of the plan, or just some?
Services covered by base fees vary greatly by provider. Do they handle all aspects of eligibility, or do they just send enrollment packets, leaving the tracking up to the employer? Or vice versa? Do they review payroll files for accuracy?Do they actually sign the Form 5500? It is important to understand what exactly the provider covers, so employers know their responsibilities and how much work they are actually outsourcing and for what cost.
Do they act as a fiduciary and take on liability for the compliance of the plan?
Not all 3(16) providers take fiduciary liability for the services they complete. Instead of sharing liability with the plan sponsor for any plan errors, they are off the hook. Look for a provider who will own and take liability for the actions they perform, reducing the risk associated with the plan for the employer. Ensure this information is in writing within the service agreement, and it’s clear what liability lies with the service provider and the employer.
What experience do they have? Do they have the ability to knowledgably act in the plan’s best interest and ensure plan compliance?
The work of a 3(16) plan administrator/fiduciary is detailed and requires expert knowledge of the rules and regulations surrounding retirement plans. What credentials do their employees have? How long have they been in business? Do they have experts in ERISA law? How do they continually stay up-to-date with changing regulations? All these questions are vital when searching for a 3(16) service provider, as employers are putting their plan and legal liability in the providers hands.
Do they provide reporting that allows you to review and understand the work they’ve done?
How do they track and document their actions for clients? Do they provide reporting that showcases what they’ve done and how they’ve kept the plan in compliance? In the event of an audit, this can help to ensure the required actions are documented annually.
How do they receive the critical data needed to complete their job?
Accurate payroll data is essential to perform the critical tasks of a 3(16) fiduciary. How does the provider get this information? What is their preferred data file transfer process? Do type of file do they require? How often? Will it be a painstaking experience every time? Can the 3(16) and payroll provider work together for the employer? It’s important for employers to know and understand the process upfront.
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