Why Small Business Owners Should Consider Adding a 3(16) Fiduciary Service to Their Retirement Plan

Fiduciary. It's become somewhat of a buzzword over the last few years in the retirement industry—and for good reason. With many retirement plan sponsors falsely believing they don’t have fiduciary responsibilities in relation to their plan, and the Employment Retirement Income Security Act of 1974 (ERISA) holding them to a rigorous standard regardless, there’s a clear disconnect when it comes to who is a plan fiduciary is and what their responsibilities are.

Reality is, every retirement plan sponsor is a fiduciary—and as such, they’re expected to act solely in the best interest of participants, perform duties with skill and care, and be prudent and knowledgeable in the field. But when it comes down to it, 401(k) plans need ongoing support to remain compliant with regulations and continue running smoothly. Between regularly communicating with participants, making timely investments of contributions, and completing forms and paperwork on time, many small business owners don’t have the time, knowledge, or resources they need to fulfill the standards outlined by ERISA on their own.

Not to mention, small business owners already have a lot on their plate and are always looking for ways to save time. For many small business retirement plan sponsors, adding a 3(16) fiduciary service to their 401(k) plan may be a great way to get the plan support they need.

What does a 3(16) fiduciary do?

As a retirement plan sponsor, you’ll likely work closely with both a third-party administrator (TPA) and recordkeeper to help run your plan. And while your TPA, recordkeeper, and a 3(16) fiduciary all have a hand in providing ongoing administrative support and remain closely involved in the plan, the roles and responsibilities of a 3(16) fiduciary are vastly different than those of your TPA and recordkeeper. While your TPA and recordkeeper can provide information, the 3(16) is the one that can make decisions for your plan.

Think of a 3(16) fiduciary as a decision-maker or an extra layer of support; they can take on additional responsibilities that are usually handled by the plan sponsor, allowing the plan sponsor to be more hands-off with the plan and limit their fiduciary liabilities. A 3(16) will typically take on a lot of the administrative duties, compliance-related work, and overall day-to-day maintenance of the plan to ensure it remains in compliance with complex regulations and runs smoothly.

Benefits of adding on a 3(16) fiduciary service to a small business 401(k)

For small business owners, adding a 3(16) fiduciary service to their 401(k) plan can offer some huge advantages. In addition to saving time, a 3(16) fiduciary can help small business owners effectively run their 401(k) plan by:

Limiting fiduciary responsibilities and liabilities for the plan sponsor
Minimizing administrative tasks associated with the plan
Helping keep the plan in compliance with ERISA, although plan sponsors do maintain some responsibility in keeping the plan compliant

Each 3(16) fiduciary provider includes different administrative services and features in their offering, so if you’re considering adding on a 3(16) fiduciary service to your 401(k) plan, you’ll want to discuss with your financial advisor which option best fits your needs.

You might also be interested in: Is My Business too Small to Offer a 401(k) plan?

Ascensus' 3(16) Fiduciary Administrative Services

At Ascensus, we provide best-in-class support for your day-to-day plan management responsibilities and create efficiencies with routine monitoring, reporting, notice delivery, and distributions management. Our 3(16) Fiduciary Administrative Services help to reduce your workload and limit your responsibility as a plan sponsor by:

Handling fiduciary obligations and ensuring key functions are documented properly
Monitoring timely submission of payroll/transfer of funds
Preparing and signing Form 5500
Identifying missing contributions
Locating missing participants
Approving distributions
Approving loans and monitoring loan payments
Authorizing incoming rollovers
Managing Qualified Domestic Relations Order (QDRO) process
And much more!

For more information about our 3(16) fiduciary service, contact your financial advisor or our team of small business retirement specialists at 833-893-3233.