Tag Archives: Retirement Plan Solutions

Retirement plan

What Makes Us So Unique? There Are a Lot of Reasons

The decision to outsource your retirement plan to experienced industry professionals should be pretty straightforward. Either you want to retain total flexibility and responsibility (and liability) for plan oversight, or you’ve decided you would rather hand off almost all of the fiduciary duties and liability to a third party. Once that decision has been made, the next decision – who best to take over these duties – is equally important. We think this is where we have a huge advantage over the rest of the industry.


The Platinum 401K is unique in its ability to have brought the first multi-provider solution to the 401k Outsourcing marketplace. Our annual recurring plan revenue – which is fully disclosed in the personalized proposal we generate for your plan – is identical regardless of which provider is selected. We also rebate back all recurring “revenue sharing” as a credit against our annual asset based compensation fees. This strategy lowers your costs and increases your plan returns. Where it’s contractually possible, we will simply carve out” all revenue sharing fees completely. Your custom plan proposals will provide complete details and additional information that you should read carefully.

We were also the first program of our type in the country to utilize a CEFEX-Certified 3(38) Investment Manager on a multiple employer plan of this type. The Centre for Fiduciary Excellence (CEFEX) is an independent global assessment and certification organization. They work closely with investment fiduciaries and industry experts to provide comprehensive assessment programs to improve risk management for institutional and retail investors. CEFEX certification helps determine the trustworthiness of investment fiduciaries. This is an important point of differentiation that you and your employees need to fully appreciate. The annual CEFEX audit of fiduciary practices of the Investment Manager provides a high level of confidence and protection for the plan and the participants.

Center for Fiduciary Excellence

Finally, we are industry leaders in terms of both experience and expertise in these types of programs. When the U.S. Department of Labor’s ERISA Advisory Council sought input on Outsourcing Employee Benefit Plan Services in 2014, The Platinum 401k CEO Terrance Power was asked to provide expert testimony before the group in Washington, D.C.

The findings of the Council have already led to several bipartisan legislative proposals in Congress that are expected to greatly expand the availability and benefits of these types of programs across the country.

We look forward to continuing to work with our supporters and friends in Washington to help broaden retirement plan coverage for working Americans. Read More

Multiple Employer Plan

It’s Time for the DOL to Rescind their Advisory Opinion 2012-04A

On May 29, 2012, the U.S. Department of Labor issued Advisory Opinion 2012-04A.

This document explained the Department of Labor’s position, at that time, on the use of multiple employer plans as they relate to companies who did not have any specific commonality or nexus that would otherwise tie them together.

It did not change the Internal Revenue Code Section 413(c) one bit, nor did it appear to change the position of the Internal Revenue Service on these types of programs. It did require multiple employer plan adopters to file individual Form 5500’s, incur the cost for an individual annual plan audit as required under current regulations, and to possess an ERISA bond for their portion of the plan.

Perhaps a walk down memory lane might offer some perspective as to why the Advisory Opinion was issued in the manner in which it was.

Multiple Employer Plan

In April 2012, noted “fiduciary expert” and multiple employer plan proponent Matthew Hutcheson was indicted on charges of stealing millions of dollars from a multiple employer plan that he oversaw (Hutcheson was eventually found guilty and sentenced to 17 years in federal prison for his crimes in 2013). The DOL issued a press release on June 14, 2012 (two weeks after the Advisory Opinion 2012-04A was released) announcing that they had obtained an injunction against Hutcheson relating to ERISA violations surrounding that case. They were right to do so.

Why is this timeline important? Clearly, during the time that the DOL was considering attorney Robert Toth’s request for a favorable opinion from them, the entire Hutcheson mess came to light…..and had the kneejerk effect of creating an “all multiple employer plans are bad” reaction from the DOL.

While on the surface, this could appear to be a rational reaction to the theft of millions and millions of dollars from plan participants.

A deeper dive into the Department of Labor’s own records of enforcement from their website, however, show much greater problems with operational compliance and theft occurring from single employer defined contribution and defined benefit plans when compared to multiple employer plan by an enormous margin.

It’s not even close. It’s not the plan structure that led to the theft, it was the criminal who was running the plan. Read More...

Multiple Employer Plans – an Enticing Alternative for Plan Sponsors

AN INTRIGUING new use of a long-established concept is catching the attention of small to mid-size plan sponsors seeking a way to simplify 401(k) plan oversight: Multiple Employer Plans (MEPs). By merging their plan into a properly structured MEP, employers cease to be a plan sponsor and effectively transfer many of the responsibilities and liabilities associated with being a named fiduciary to the MEP.l6019022dstbai776952

The MEP concept is exploding in popularity. Established under ERISA 413(c), MEPs historically have been used by companies that share a common industry or payroll provider, primarily association plans and professional employer organizations (employee leasing). However, as interest in outsourced fiduciary solutions has grown in recent years, a new generation of “open” MEPs for unrelated companies has sprung up. While MEPs can deliver tremendous benefit to many plan sponsors, an MEP is a solution in search of a problem for others. This article is written to help plan sponsors determine if this approach is a good fit for their organization.

The MEP sets up a single plan that covers all adopting employers, with the plan document generally written to allow for variation in plan design among the participating companies. Fund selection and monitoring generally are handled by the MEP. Discrimination testing and plan design (with some limitations) generally remain with the adopting employer. The shift in responsibility results in several potential benefits:

Elimination of annual plan audit:

Plans that cover more than 100 employees typically are required to have an annual plan audit performed as part of their annual plan Form 5500 filing. Under the MEP arrangement, there is still a plan audit, but only one that is performed at the overall MEP level. The annual audit that is required by each employer (now known as an “adopter”) is eliminated, resulting in significant savings to the employer.

Mitigation of fiduciary risk:

Independent fiduciary W. Michael Montgomery described the impact on fiduciary liabilities in Multiple Employer Plans as a Fiduciary Risk Mitigation Tool:

“Employers adopting a sound Multiple Employer Plan…achieves a profound reduction in fiduciary risk exposure. The reason is a simple one: The adopting employer ceases to perform certain key roles that incur fiduciary status. When an employer merges its current single-employer plan into a properly structured MEP, it is no longer the sponsor of the plan. It also should cease to be a trustee, plan administrator, or any sort of named fiduciary. Those central roles move to the MEP, and the inherent fiduciary liability transfers with them.”

The relief offered by MEP participation is extensive but not total. Certain responsibilities generally remain with the adopting employer, and even this reduced role must be taken seriously. Those responsibilities include:

  • The need to make timely and accurate plan contributions.
  • Plan design decisions, such as the level of match.
  • The decision to adopt or de-adopt the MEP including necessary due diligence and monitoring of the MEP.
  • Distribution to participants of required notices and information, though this may at times be handled directly by the MEP plan sponsor.
  • Communication and enrollment assistance for participants.

Streamlining of plan operations:

In addition to the audit elimination, MEP adopting employers no longer file a Form 5500, maintain a fidelity bond, or shoulder the responsibility for 408(b) (2) compliance. These are handled by the plan sponsor that is associated with the MEP, not the adopting employer. For some employers, this benefit is inconsequential. For others, the desire to let outside experts run the plan can be more important than either the audit relief or fiduciary risk mitigation.

MEPs are not a good fit for every employer. Some plan sponsors already are mitigating their fiduciary exposure through a comprehensive, well-documented fiduciary process. Others don’t consider the cost or effort of an annual audit to be significant enough to justify making a change. Still others take satisfaction in staying engaged in plan oversight and fund monitoring. Simply put, if the advantages of an MEP appear to be solving a problem you don’t have, this approach is not for you.

An employer also should consider the potential limitations inherent in most MEPs. These may include the following:

  • The adopting employer does not select its own fund menu. For many, this is a relief. Others want to have more involvements in investment decisions and consider this a takeaway.
  • Loss of current provider. Though some MEPs offer a degree of flexibility, most are tied to a single record keeper or third-party administrator, so you will most likely have to leave behind your current providers to enjoy the benefits of adopting an MEP.
  • “Bad Apple” impact: one adopting employer with serious compliance violations could cause the entire MEP to be disqualified, though a more likely scenario is that corrective measures will be taken. In the 20-plus years that I’ve been associated with Multiple Employer Plan clients, I’ve yet to see this occur. It is important that employers confirm the availability of a “disgorgement provision” in any MEP that they may be considering. This important plan design feature allows the MEP to quickly eject and thereby isolate any noncompliant adopter from the plan.

If these features are appealing and the limitations are acceptable, you may want to look further into the Multiple Employer Plan approach to your company’s retirement plan solutions.

I’ve been told by plan sponsors that they decided to join an MEP because these programs are handled the same way as their other employee benefit programs, where the benefit providers handle all the details. For example, while an employer could, at least in theory, negotiate with doctors, hospitals, MRI service providers, pharmacies, etc., for their employees’ medical coverage, most find it easier to outsource these micro-managed decisions to a third party—in that case, a health insurance provider that offers a group health-care policy.

There is a trade-off in control, options, etc., but there also is comfort in knowing that there are professionals at the helm and that they have a vested interest in making sure that their employees are taken care of in accordance with the terms of the arrangement.

Plan sponsors and their advisers will, of course, need to determine on a case-by-case basis whether these programs are a “fit” for their plans and their plan participants.

What Kind of “fiduciary” Are They?

When you’re looking for relief from the personal liability and financial risks of being a 401(k) plan fiduciary, not all fiduciary protection is alike. You don’t stop being a plan fiduciary just because a vendor signs on as a plan fiduciary or gives you a certificate!Multiple Employer Plans

Fiduciary Warranty: Warranties offer to pay court costs or claims if the fund menu is deemed not to meet certain minimum standards. They usually cover only a fraction of actual fiduciary exposure and often clearly state that the 401(k) provider is not a plan fiduciary. They provide “coverage” for violations that are very rarely contested.

Co-Fiduciary Services (ERISA 3(21)(a)): This term includes a wide array of fiduciary services ranging from a vendor that accepts minimal responsibility for the appropriateness of its funds to advisors or independent services that assist you with investment oversight. Co-fiduciary support can be helpful, but the plan sponsor is still liable and needs to follow sound fiduciary due diligence processes. This type of arrangement is little more than another target for litigation. It provides very little protection to the plan sponsor.

ERISA 3(38) Investment Manager: Through a written contract, the plan sponsor formally delegates all responsibility for selection, monitoring and replacement of the 401(k) plan’s investment funds to an outside expert. This results in a significant transfer of investment fiduciary liabilities. The plan sponsor still retains all other plan fiduciary responsibilities, and also needs to monitor the qualifications and performance of the Investment Manager on an ongoing basis.

plan1Multiple Employer Plans (MEP): Multiple Employer Plans have been called “the platinum standard of fiduciary risk reduction” since the MEP itself actually contracts with the service providers, not the adopting employer. The employer is no longer the plan trustee and has no responsibility for direct investment oversight. Properly structured, an MEP can also remove a large percentage of fiduciary liability when an ERISA 3(16) Plan Administrator is involved in the process. MEPs can eliminate the responsibility for the employer to file annual Form 5500’s, oversee service providers, deal with document restatements, select and monitor investment funds, and much more! They are a terrific retirement plan solution for the smaller end of the 401k market.


Exclusive Interview with Terrance Power: 401k MEPs Reduce Downside Risk for Company Execs

Terrance Power

For some time now, readers have seen Terry Power quoted frequently in many a FiduciaryNews.com article. Ever since we first met him at the 2012 fi360 Annual Conference, we’ve considered Terry one of our pre-eminent “go-to” guys when it comes to all things MEP. He is the Founder and President of The Platinum 401k, Inc., the independent marketing organization of American Pension Services, LLC located in Clearwater, Florida. Terry has been in the retirement plan industry since 1981 serving as an adviser, a retirement plan wholesaler, and a fee-for-service third party administrator. He is a frequent speaker at industry functions and has provided testimony before the United States Department of Labor ERISA Advisory Council on the subject of Outsourcing Employee Benefit Plan Services.

FN: Terry, we always like to give our readers a chance to discover how past experiences have led our interview subjects to where they are today. What are some of the highlights of your fascinating journey?

Power: Thanks for the opportunity to discuss my background, Chris. Like yourself, I’m a native of Western New York. I fled the cold weather and a lackluster economy back in 1985 where I had worked for several years as an investment broker with Dean Witter Reynolds and relocated to the Tampa Bay area. In 1990 I joined Manulife Financial (now John Hancock in the U.S.) as a retirement plan wholesaler working with brokers and advisers both locally and in southeast Florida. I left Manulife in 2000 to establish American Pension Services in Clearwater as an independent, fee-based third party retirement plan administration and consulting firm. I am the President of American Pension Services, LLC and also The Platinum 401k, Inc., the multiple employer plan marketing arm of our firm.

Our location in the Tampa Bay area helped to develop our expertise with multiple employer plans. I often note that we became “experts by proximity,” as much of the initial development of the Professional Employer Organization (PEO) industry – which were originally referred to as Employee Leasing Companies – began here in the Tampa Bay area. In 2002, the Internal Revenue Service issued Revenue Procedure 2002-21 which required PEO’s to utilize multiple employer plans as their retirement plan solution for their client organizations (adopting employers). By working closely with PEO’s, we gained years of experience with multiple employer plans, both regarding the legal framework as well as the operational details that are so critical in practice.  We continue to provide third party administration services to PEO’s across the country to this day.

FN: Just to make sure everyone is up to speed on the subject matter, can you describe in simple terms what a 401k MEP is and what makes it an attractive option for companies?

Power: A 413(c) multiple employer plan is a defined contribution plan which, by its very definition, is composed of companies who are not directly related. A 401k MEP – not to be confused with a “multi-employer defined benefit plan” – functions fairly similarly to a traditional 401k plan, except most of the duties and responsibilities of running the plan falls to a third party. This allows the employer to effectively “outsource” many of the fiduciary duties associated with sponsoring a traditional retirement plan. These duties can include investment selection and monitoring, plan document amendment and restatements, approvals of hardship withdrawal/QDRO/beneficiary payments, filing of annual IRS forms, plan trustee and Plan Administrator duties, and much more.

FN: That sounds like a fairly attractive proposition. Does the 401k MEPs have a downside? Who is best served in a 401k format? What might be an example of an alternative?

Power: The main issues with MEPs are that they’re pre-packaged in terms of how they operate. The 3(38) Investment Manager has been named, the investment lineup has been set, and the various service providers have been contracted. A well-structured MEP can still allow for significant flexibility in plan design, and also allow a choice of investment providers. However, if the client is insisting on using a certain product or service provider, they’re probably going to be better served outside of a MEP arrangement. We view the MEP as the “value meal” option to feed your retirement plan hunger. It’s prepackaged, and as such there are minimal decisions to be made, and there are usually some pricing concessions. The “a la carte” or “off the menu” option would be a 3(16) Plan Administrator format outside of a MEP. In this type of structure, the client has more options available to them. We provide both services to clients. It’s really up to them as to which makes the most sense.

FN: What are the differences between a closed MEP and an open MEP?

Power: A “closed MEP” is a multiple employer plan where there is some “commonality” or “nexus” between the companies who adopt onto the multiple employer plan. A few examples of this would include a plan sponsored by an association for their members, or a Professional Employer Organization (PEO) plan. These plans only need to file one global Form 5500 and have one annual plan audit regardless of the number of adopters in their plan.

An “open MEP” simply means that the “commonality” or “nexus” isn’t there between the adopters. Under a Department of Labor advisory opinion that came out in 2012, open MEP adopters are treated as individual plans in terms of reporting and other requirements. This means that each adopter is required to file an individual Form 5500 on an annual basis, and if necessary, an annual audit must be performed at the adopter-level. The Form 5500’s are typically filed by the MEP’s 3(16) Plan Administrator on behalf of the adopter, by the way.

In either situation, the worksite employer eliminates their trustee-level liability (since they’re not a trustee) as well as investment fund selection and monitoring duties. Many MEPs will use an unaffiliated ERISA 3(38) Investment Manager to provide an additional layer of protection for both the MEP and the plan participants. Many programs also incorporate a 3(16) Plan Administrator who has a fiduciary obligation to oversee many of the operational aspects of the plan. This eliminates the need for the employer to become skilled on evaluating QDROs, approving hardship withdrawals, maintaining and amending plan documents, approving beneficiary payouts, creating annual notices to participants, and much more.

A MEP – whether open or closed – can help the employer run their retirement plan in much the same manner as they handle all of their other employee benefit programs: they choose a provider, the provider assumes responsibility for the operation of the program, and the employer evaluates the program on an annual or more frequent basis. This is how most Worker’s Compensation, Group Health, Group Life, Dental, Vision, etc. plans all work. 401k Plans will eventually work in much the same manner once pending legislation fully embraces these programs in an effort to help close the “retirement gap” in our country.

FN: How did the 2012 DOL Advisory Opinion letter change the landscape of MEPs?

Power: The Department of Labor Advisory Opinion 2012-04A clarified the U.S. Department of Labor’s position that they treat each individual adopter in an open MEP as a separate plan for reporting purposes. This meant that we, as the third party administrator for the MEP, would need to prepare and file an annual Form 5500 for each adopter. Also, any adopter who had a sufficient number of employees to qualify for an annual plan audit would now have to have their own annual audit (as they would if they had a stand-alone plan).

It was interesting to notice after this advisory opinion came out that less than 20% of our adopters were “audit clients.” Our average adopter size at that time was around 80 employees. That meant that 80% of our clients came to us not because they were trying to “dodge the audit costs,” but because they just wanted someone to run their 401k plan for them. Just like they do all of their other employee benefit programs.

FN: Other than compliance, what are some of the operational challenges facing the creation and maintenance of MEPs?

Power: It’s a very complicated and narrow part of the ERISA landscape. If you’ve got 26 years of dealing with multiple employer clients like we do, they’re not extremely hard to deal with. When we hit the marketplace with our Platinum 401k program over five years ago, we seemed to give birth to a number of competitors very quickly. It became very obvious that most of these folks had zero experience with these types of plans. I expect the same problems to arise once Congress approves the pending legislation (which the President’s proposed 2017 budget has already allocated $100 million towards). My best advice is that if you don’t have the background in working with these types of programs, it’s not something that lends itself to on-the-job training.

FN: You’ve been heavily involved in Congressional Hearings on the subject of MEPs. Share with us some of the insights you’ve picked up from these activities. How long has Congress been interested in this subject and who are the key players involved? Where does the proposed MEP legislation rank in terms of priority?

Power: There have been several hearings on Capitol Hill on the subject. I was invited to make a formal presentation before the U.S. Department of Labor’s ERISA Advisory Council in August 2014 on the subject. The findings of the Council appear to reflect that they appreciate the many benefits associated with the expansion of multiple employer plan solutions in the marketplace.

There has been a bill of one sort or another in Congress for at least the past four years. Senate Finance Chairman Orrin Hatch is one of the leading proponents of expanding open multiple employer plans. His committee has a bi-partisan recommendation to move forward to expand these types of plans. Senators Collins and Nelson also have a bipartisan bill that offers some terrific benefits.

At this point, it’s really not a matter of “”are they going to do anything?” but more of “when will the bill get through and be signed into law?” The wheels turn painfully slow in Congress, but it would not be unreasonable to think that we could see a bill on the new President’s desk as early as this time next year.

FN: You’ve earlier outlined some of the concerns with the current state of MEPs. How does it appear Congress intends to address these?

Power: The proposed legislation should take away the “commonality” requirement in open MEPs, meaning that the individual Form 5500 filings and individual annual audits will become a thing of the past. I also believe that – depending on which political party controls the legislature – multiple employer plans as a solution for the upcoming state-sponsored retirement plans for private sector employees will be eliminated. The resources and expertise for running retirement plans for private sector employers exists just fine under ERISA, and in my opinion, that’s exactly where these plans need to remain.

FN: Turning to the subject of the DOL’s new Conflict-of-Interest Rule, there are some who suggest complying with this Rule may increase fiduciary liability on the part of plan sponsors (who must monitor the integrity of the now mandatory disclosures from service providers). In what ways does the DOL’s new Rule impact MEPs both in terms of the individuals running the MEP and the relative attractiveness of the MEP alternative to current 401k plan sponsors?

Power: I’m not an attorney, so these are just my own thoughts: I think the “Best Interests Contract” exemption is a plaintiff’s attorney’s dream. Reading between the lines, it just looks to me that the Department of Labor wants everybody who is involved with helping Americans save for a secure retirement to have an acknowledged fiduciary status so they’re on the same side of the table as their client. Some advisers or brokers don’t have the knowledge or experience (or ability) to become a fiduciary. That’s where a well-structured multiple employer plan can be a great solution.

In our program, there are three separate and unrelated plan fiduciaries who oversee the investments, plan operations and administration, and the service providers. I think the separation of the three entities is critically important as a way to protect the plan and the plan participants for a variety of reasons. Some of the industry’s top ERISA attorneys have opined on this very subject in great detail over the past few years. I’d encourage anyone interested in learning more about this to spend a little time researching the subject. Separation of fiduciary duties is a critical component of retirement plan success.

FN: Let’s end with a couple of predictions. First, policy makers have complained about the lack of availability of corporate retirement plans. This has prompted many states to consider offering the alternative of sponsoring their own private employee retirement plans. How might broader use of MEPs both address the “lack of availability” problem head-on and obviate the need for state-sponsored private employee retirement plans?

Power: I think Congress will take care of the state-sponsored plans through a legislation solution at the same time they expand the availability of open multiple employer plans across the country. I don’t see them being implemented.

FN: Second, picture the retirement world of the next generation. Why might MEPs become the new standard for delivering retirement plan to private companies? Under what special circumstances would you see an individual company justify continuing their own plan rather than joining in with an MEP?

Power: MEPs bring the employer’s retirement plan right in line with all of their other employee benefit programs. The employer selects a provider, and the provider handles the details. There is no upside for an employer doing everything perfectly with their retirement plan. The downside risk, however, can be huge. It’s a risk that just isn’t worth the employer taking.

The only companies in the smaller end of the market (under 5,000 employees) who wouldn’t want to at least consider a multiple employer plan solution years from now are likely those who have a very demanding need for specialized investment options that just wouldn’t be typically found in a MEP portfolio. I think it will be very unusual for a plan sponsor not to at least consider a multiple employer plan solution after all the dust settles in Congress on these programs.

FN: Are there any other thoughts on the new Rule you’d like to add?

Power: My only thoughts really deal with observing the legislative and lawsuit challenges that are certain to come on the Fiduciary Rule. It will be fascinating to read the arguments that will be made by opponents of the rule as to their reluctance and outrage of being placed on the “same side of the table” as the investing public.

FN: Terry, you’ve been very enlightening and we appreciate you taking the time to share with our readers some of the fruits of your unique experience in the 401k MEP world. We look forward to continue this ongoing discussion and can’t wait to see the future unfold for 401k MEPs.

ERISA 3(16) Plan Administrator Services Summary

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.ebn-031116-p2-morning-fotolia

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.

PUaRYiqWe 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.Retirement-Planning

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



NYC Proposes Their Own Private-sector Retirement Plan, Making a Bad Idea Even Worse

PUaRYiqNew York City’s mayor Bill de Blasio called for a city-run retirement system for private sector employees in his annual keynote “State of the City” address last week, following the lead of more than a dozen states across the country.

De Blasio revealed that he wants the city to become the first city in the country to offer a retirement system to private employees. Reuters reported last week that “some states have already started looking at introducing plans for private sector workers, leveraging the extensive infrastructure, know-how, and cost benefits they have acquired in running plans for public employees.”

I’m not sure how many states and cities could make such a statement and keep a straight face given their miserable history in “running plans for public employees”.

Apart from the clear track record that having municipality oversight of private sector employee retirement funds opens the door for corruption and abuse, the entire structure of such a program flies directly in the face of the very reasons why the Employee Retirement Income Security Act (ERISA) was signed into law over 40 years ago. ERISA exists to protect workers and provide a federal preemption in order to insure uniformity in retirement plan structure across the country.

The New York Times reported in August 2014 that the New York City overseen pension plan for general works was only 63 percent funded as of the end of 2012. This is a dramatic decrease from being in an “overfunded” situation back in 1999 of over 135 percent. In other words, this New York City Pension Fund doesn’t have anywhere near the amount of money that will be needed to cover retiree pension obligations with only a dangerously low 63% funding level.

The Times also reported that in 2013 Morningstar, the investment research firm, evaluated for the first time the strength of state and local pension systems across the country and rated New York City’s as “Poor”. Only a few major cities’ pension systems garnered such a low rating, said Rachel Barkley, a municipal credit analyst who wrote the report for Morningstar. And despite state laws calling for regular audits of the city pension system, the Times found that there has not been an audit performed on the New York City plans since 2003.

New York City might be the poster child for municipal pension plan mismanagement, Illinois and the City of Chicago notwithstanding.

Is this the “extensive infrastructure, know-how, and cost benefits” that the City has gained that should now be leveraged for private sector employees?

I don’t think so.

Recently, New Jersey Governor Chris Christie vetoed a proposed state-run private sector retirement plan citing his reluctance to create even more government bureaucracy when the resources to provide retirement plan coverage already exist in the private sector.

“I share the sponsors’ concerns for the financial future of the residents of New Jersey, but I believe that the approach taken by the Legislature — mandating participation under a threat of fines for not participating — is unnecessarily burdensome on small businesses in New Jersey,” Christie said in his veto statement. “The bill also requires the state to bear the initial cost of creating the program, subject only to reimbursement when funds become available.

“Finally, the bill creates yet another government bureaucracy to oversee and implement the program, while there are plenty of private-sector entities with particular expertise that can perform this function instead.”

Governor Christie is correct in his analysis and for issuing the provisional veto.

In late 2015, the U.S. Department of Labor issued guidance to the various states who were looking for an “ERISA solution” to oversee retirement plans for private sector employees. The DOL brought forth a recommendation that, among other options, a 413(c) Multiple Employer Plan structure be used.

AAEAAQAAAAAAAAbVAAAAJDM2ODNkMmZjLTY5OTUtNDY0Mi1iMWYyLThkOTNjYjY5OTQ2YQWe agree that open multiple employer plans, or “Open MEP’s” as they are known, are an efficient type of program to broaden retirement plan coverage for private sector employees who work for unrelated employers.

We strongly disagree with allowing individual states – or now, apparently, cities – to serve as the plan sponsor and run their own statewide multiple employer plan program for private sector employers. This will end up leading to a patchwork of different plan types across the country and create havoc for employers who have employees scattered or relocating between several different states.

In late January 2016, the White House finally brought forth a recommendation that existing ERISA multiple employer plans be expanded so as to eliminate the “commonality” or “nexus” requirement among employers. This was most welcome news and falls right in line with the bipartisan recommendations of the U.S. Senate Finance Committee under Chairman Orrin Hatch and Ranking Member Ron Wyden.

The Senate Finance Committee’s proposed legislation would eliminate much of the confusion created by an Advisory Opinion from the Department of Labor in 2012, which increased some of the barriers and eliminated some of the benefits associated with Open MEP’s.

Under the proposed legislative changes, unrelated employers within an Open MEP would finally be able to band together not only for operational efficiencies, but also for some dramatic cost savings. Individual adopters would no longer have to file individual Form 5500’s, nor be subject to an individual plan audit. There will still be ERISA safeguards in place to protect employees, and, as I recommended to the Department of Labor’s ERISA Advisory Council in 2014 in my testimony addressing Outsourcing Employee Benefit Plan Services, formal guidelines for establishing and operating an Open MEP should be put forth by the Department of Labor to help prevent abuses and to insure protection for plan participants.

The Senate Finance Committee, now with the approval of the White House, should advance their proposed legislation in a timely manner. The Department of Labor should take action and modify their position under Advisory Opinion 2012-04(a) given the broad bipartisan support for encouraging a private sector multiple employer plan solution for unaffiliated employers.

Depositphotos_8968157_original-940x446They also need to include in their bill language to eliminate the ability for state and local governments to intrude into the retirement plan management of America’s private sector workers with anything other than a voluntary payroll-deduct IRA or the new myRA program.

Given the self-interests of Mayor de Blasio and others who are certain to follow his lead into the cookie jar, time is of the essence. America’s workers need not only broader coverage, they also need competent, experienced professionals and the protection offered under federal law to insure the safety of their retirement nest eggs.

It’s time for Congress and the White House to take action on this important issue.