We receive a lot of inquiries about our 3(16) Plan Administration services from clients and advisers across the country. From our perspective, the decision to utilize a 3(16) administrator verses simply becoming an adopting employer within an Open Multiple Employer Plan is similar to the decision whether to order the “value meal” or “a la carte” off the menu in the drive-thru at your local fast food restaurant.
Both options have benefits as well as limitations.
The “value meal” multiple employer plan approach is pre-packaged and ready to go. You probably won’t have to wait in that special parking spot if you just go with “#4 and a medium coke”. But there’s little room for major customization. You’ll likely get a price break going with the packaged deal since there are some efficiencies that the restaurant gains by having you buy something that’s pretty much already set up.
The “a la carte” 3(16) Plan Administrator selection allows for almost endless customization. It might be a little more expensive, but you can get what you want exactly how you want it (you can have it “your way”). It also might take a little more time to deliver the final product.
Which is better? It all depends on what’s best for you and what your plan is hungry for.
We act as the 3(16) Plan Administrator on The Platinum 401k suite of multiple employer plans, but we also serve as a 3(16) plan administrator through one of our affiliates on individual qualified plans. Our work as a 3(16) can either be in conjunction with our in-house third party administration service provider, American Pension Services, LLC, or in tandem with another compliance and administration service provider (such as a “bundled platform”).
Again, there are pros and cons to both. It depends on the client and what’s best for them and the plan participants.
Here’s a copy of our marketing flyer for our 3(16) services. It might give readers a better idea of how we can fit into your client’s retirement plan needs:
What Is A 3(16) Plan Administrator?
The term “plan administrator” or “administrator” means the person specifically so designated by the terms of the instrument under which the plan is operated. If an administrator is not so designated, the plan administrator is the plan sponsor, as defined in section 3(16)(B) of ERISA (Employee Retirement Income Security Act of 1974, as amended). The Plan Administrator could be the employer, a committee of employees, a company executive, or someone hired for that purpose.
The role of the plan administrator should not be confused with the role of a “third party administrator”, commonly referred to as a “TPA”. A third party administrator is typically only a service provider to a plan and does not possess any discretionary authority to make fiduciary-level decisions for the plan. The ultimate responsibility and liability for plan compliance generally remains fully with the employer under this type of arrangement.
By engaging an independent 3(16) Plan Administrator, the plan sponsor has the ability to outsource many of the required duties of the plan administrator to a third party. This can lower liability to the plan sponsor while also allowing them to offload many of the time consuming compliance and operational responsibilities to a third party. The 3(16) Plan Administrator will actually engage other service providers on behalf of the plan in accordance with the scope of the service agreement between the 3(16) Plan Administrator and the plan sponsor.
What Services May A 3(16) Plan Administrator Perform?
The exact role of the 3(16) Plan Administrator is dependent upon what responsibilities or decisions the plan sponsor wants to maintain control over and which they would like to have managed for them. A 3(16) Plan Administrator can come in several, quite different variations and be engaged to do either a limited or very broad group of tasks for the plan. Typically, the employer will retain responsibility and liability for those decisions that they make, which may include selecting the investment provider, plan adviser, plan auditor, plan trustee, 3(38) Investment Manager, and, of course, selecting the 3(16) Plan Administrator themselves.
The decision to select a 3(16) Plan Administrator is a fiduciary decision, and the employer will need to maintain fiduciary oversight of the work being performed by the 3(16) Plan Administrator. It is important for the plan sponsor to understand that not all “3(16) Plan Administrator” programs being marketed in the retirement plan arena are the same.
Some fall under what we refer to as a “full scope 3(16)”, while others have a more “limited scope 3(16)” structure. There are major differences between the two models that plan sponsors should be aware of and understand before selecting their service provider.
Can a 3(16) Plan Administrator Hire An Affiliate to Perform Services to a Plan?
Sure, but it is important to note that this relationship may constitute a serious conflict of interest that needs to be fully disclosed and understood by the Plan Sponsor. In many 3(16) arrangements, it is common for the 3(16) fiduciary to engage an affiliate firm to act as the plan’s third party administrator. This is commonly done due to the many efficiencies that may be gained by bringing the compliance and administration services “in house” along with the 3(16) services.
The plan sponsor will need to be aware of this inherent conflict, and may even decide to engage the third party administrator directly themselves so they can fully retain oversight of the third party administrator.
Our own 3(16) model typically will incorporate the third party administration services of American Pension Services, LLC, an affiliated company, as the third party administrator. We also have the ability to serve as the 3(16) Plan Administrator with other entities providing plan compliance and administration services, including arrangements within a “bundled” plan format. We can provide you with more information on this option upon request.
We strongly oppose a plan sponsor engaging a 3(16) Plan Administrator who is an affiliate of, or in a captive relationship with, any one individual provider, as they may lack the ability to objectively review the service provider for ongoing suitability for the plan. We also oppose any type of 3(16) Plan Administrator agreement that offers a 3(38) Investment Manager as part of their program for the same reason. It is not unreasonable to assume that a 3(16) Plan Administrator may lack the fiduciary objectivity to terminate an affiliated company as part of their required plan oversight duties.
I’m Interested In Learning More. How Can I Get Additional Information And Pricing?
Each of our 3(16) Plan Administrator arrangements is custom priced and tailored for the individual client’s needs. Our contact information is below. Please feel free to reach out to us with any questions you may have. We look forward to being of service to you and your plan participants!
Terrance Power, AIFA, QPA, CFP, ERPA, CRPS
2451 N. McMullen Booth Road, Suite 200
Clearwater, FL 33759