Saving Time through Outsourcing DC ERISA Operation Duties under 3(16)

Posted by: Fred Barstein in Compliance, Compliance Video, Featured Video, Fiduciary July 28, 2016

There has been a lot of talk about outsourcing ERISA fiduciary responsibility for defined contribution (DC) plans focused on investments under sections 3(321) and 3(38). But there’s a growing interest in outsourcing administrative responsibilities under 3(16) which may be even more beneficial especially for smaller plans. Tim Halchcuk, a record keeping TPA attending The Retirement Advisor University (TRAU) at UCLA to get his C(k)P explains how his firm helps DC client offload day-to-day responsibilities.

The new DOL conflict of interest rule has put a spotlight on advisors especially whether they are acting as a co-fiduciary when helping their DC and IRA clients select and monitor investments. These advisors can either help DC plan sponsors to select and monitor the plan’s investment under 3(21) or the plan can delegate all investment selection and monitoring under 3(38). But under 3(16), plans can outsource the operational aspects of running their DC plan including loans, hardship withdrawals, document prep and deposits.

Sound interesting? There are things to consider when outsourcing under 3(16). Plan sponsors still have the fiduciary responsibility of prudently selecting and monitoring the 3(16) provider. There are also different forms of 3(16) so some large record keepers might offer a “light” version where they just sign documents like the 5500 but not the full spectrum of administrative duties. And finally, one of the duties of a pure 3(16) could be to monitor the plan’s advisor and providers so if any of those parties are acting as a 3(16), they obviously cannot monitor themselves.

Halchuck’s firm AMI Benefit Plan Administrators located in Ohio works with 600 employers representing $1 billion and all his clients use their 3(16) services. For employers that want to focus on their business and HR professionals that want to focus on strategic issues, outsourcing makes sense, especially the operational aspects of running a DC plan. Just make sure that the 3(16) is qualified and that there’s a documented prudent process to periodically monitor them and their services.

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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.