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Dangers for 401k Plan Sponsors using a 3(16) Fiduciary

While it is most common for 401k and 403b plan sponsors to use a 3(21) or 3(38) fiduciary to help with investment selection, 3(16) fiduciary support dealing with administrative duties is becoming more common. Rob Wisner, founder of Paragon Alliance Group, a compliance TPA in the Philadelphia area speaking at a TPSU program at LaSalle University, discusses the dangers and different types of 3(16) fiduciaries.

A full 3(16) fiduciary, along with mundane administrative tasks like signing the 5500 form, has the power to hire and fire vendors including the record keeper and advisor. When Wisner provides a checklist of 3(16) duties, some plan sponsors decide not to outsource all responsibilities.

Even when outsourcing to a 3(16), just like with a full discretion 3(38) investment fiduciary, the plan sponsor still has the fiduciary responsibility to make sure that the vendor is qualified and then must continually monitor them to make sure they are fulfilling their duties.

401k and 403b plan sponsors have the fiduciary responsibility to act as a prudent expert and the stakes are getting higher with increased scrutiny, regulations and lawsuits. Which is why most outsource those duties to a qualified expert. Which means that rather than completing the tasks themselves, plan sponsors must make sure that outsourced fiduciaries like advisors, TPAs, auditors and record keepers are qualified and are completely all assigned duties in a professional manner.

401kTV has published a simple checklist of the duties a 3(16) might complete along with definitions of 3(16), 3(21) and 3(38) fiduciaries so that 401k and 401b plan sponsors can make informed decisions when outsourcing their fiduciary duties. While waning in popularity, fiduciary warranties are at best limited and at worst worthless so don’t get fooled by protection that you might pay for but provide little benefit.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein

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