Fiduciary Duties: ERISA 3 (16) – Administration Layer

by | May 25, 2017 | 401k & Retirement Planning

Most owners and Plan trustees understand that they are Plan fiduciaries. However, most are unaware of the full scope that fiduciary duties entail. Hence, the false belief that in hiring service providers they relieve themselves of these duties. It is true that fiduciaries can outsource some of their responsibility. However, you always retain the responsibility to select and monitor these providers. In the case of Plan administration, fiduciary vs. non-fiduciary roles tend to create more ambiguity for sponsor.

“Discretion” dictates your risk and responsibility.

3(16) Fiduciary: Plan Administrator

In the clear majority of cases, Sponsors are the Plan’s 3 (16) Fiduciary and Administrator by default, unless your Plan document states otherwise. The Administrator’s job is to ensure the Plan operates in compliance with the Plan document. Many Plan sponsors confuse this fiduciary role with third party administration (TPAs). The difference? You can delegate many non-fiduciary administrative duties to the TPA. However, you can never fully divest fiduciary duties. Below are some helpful guidelines.

Non-Fiduciary Duties

  1. Applying eligibility rules to participation or benefits; calculating benefits and crediting service;
  2. Preparing employee communications;
  3. Preparing drafts of government filings;
  4. Maintaining records;
  5. Collecting and/or applying contributions, accounting and reconciling data;
  6. Processing approved claims and loans for distribution;
  7. Orientation of participants and providing plan information;
  8. Preparing benefit statements

Fiduciary Duties

  1. Authorization of distributions or loans, or any plan transactions;
  2. Selection or monitoring of investments;
  3. Selection or monitoring of service providers; and
  4. Actions to enforce or interpret the terms of the plan, or decisions on claims for benefits

When you aren’t sure how to interpret Plan document language, a knowledgeable TPA can help you to understand key document provisions so that you can operate in compliance. Of course, this means you have read the Plan documents so you are aware of its various provisions so you know when to ask questions.  And to underscore the point: you can’t blindly accept the TPA’s word on fiduciary matters – you must also verify that it’s consistent with your Plan document.

Risk Management: Know What You Don’t Know

Plan Sponsors can’t plead ignorance. You must know what you need to know. Costly conflicts of interest, despite improved disclosure rules, remain buried in fine print. Many lawsuits have resulted because the person making the decision, wasn’t the person who owns the risk.

Insist that your agreements with service providers clearly define duties and be sure to examine them BEFORE signing day.

Source: 401k Help Center

Jerry Matecun helps business owners to understand and manage retirement plan risks and responsibilities, as well as help participants understand saving, investment, and distribution strategies vital to retirement readiness. For a no cost, confidential conversation regarding your retirement plan call or email Jerry at 949-273-4200, 616-499-2000, or

PLEASE NOTE: Nothing herein or elsewhere on this site constitutes investment, legal, or tax advice. For details please see Disclosure.

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