Should we outsource our 3(16) admin services?

Q: Hi Erick, we are considering outsourcing some of our ERISA 3(16) administrative fiduciary responsibilities. What are some things to keep in mind? – Jon in Van Nuys, CA

A: Hi Jon!

Many plan sponsors already outsource administrative duties to their recordkeeper (such as hardship approvals and preparation of 5500 forms) in a non-fiduciary capacity. Some are now looking to outsource not only the work, but also the fiduciary discretion or control, to minimize workloads and/or reduce ERISA liability. Given the scope of responsibilities, a provider’s technological capabilities and knowledge, skill and experience with plan administration is very important. Connectivity to the recordkeeper (when the 3(16) fiduciary is unrelated) also matters to ensure a quality service experience for plan participants. To further explore governance models that delegate some level of fiduciary responsibility to external providers, check out “Defined Contribution Plan Governance Models: A Guide for Plan Sponsors,” published by the Defined Contribution Institutional Investment Association.

I do have some strategies to address this issue for my clients so reach out and I’ll share what I’m doing.