While much of the focus on fiduciary outsourcing centers on transferring full or limited investment discretion under ERISA section 3(38) or section 3(21), plan advisors’ understanding of the ins and outs of 3(16) outsourcing apparently is becoming more commonplace.
Pentegra recently conducted a survey of retirement plan advisors to determine what their attitudes are toward 3(16) fiduciary outsourcing. In the resulting report, “Advisors and 3(16) Fiduciary Outsourcing,” the firm found that more and more advisors are looking at transferring administrative fiduciary responsibility to 3(16) fiduciaries.
According to the results, more than 80% of surveyed advisors are familiar with 3(16) outsourcing. In addition, another 84% of respondents said they are considering recommending 3(16) administrative services.
While most employers are not aware that they can choose not to be the responsible fiduciary for plan administrator duties, survey evidence shows they are learning they can outsource those duties. In contrast, a common misconception is that many employers likely believe they’ve already “outsourced” these duties to their TPAs when in reality they have only obtained clerical help from a non-fiduciary service provider.
What’s more, more advisors believe their clients are receptive to outsourcing services. The results show that more than 34% of advisors believe their clients are receptive to 3(16) services, while another 56% believe their clients are somewhat receptive.
When asked what makes outsourcing services most attractive to clients, the number one answer was that it “mitigates retirement plan risks.” This was followed by plan oversight relief, while tied for third were lessening administrative responsibilities and reducing plan burdens.
Meanwhile, 75% of surveyed advisors said they are actively discussing 3(16) fiduciary outsourcing with their retirement plan clients. Advisors also reported that more clients are utilizing 3(16) fiduciary outsourcing than not. When asked what percentage of their clients are currently utilizing these services, nearly 40% said they are, while 21% said they aren’t.
“For many employers, the commitment of time and energy is overwhelming and too often distracts from the more critical responsibility of running a business. As an advisor, it is a distraction from your business as well,” explains Richard Rausser, Pentegra’s Senior Vice President Client Services.
Taking full responsibility as a 3(16) plan administrator “can be a tall order,” Rausser adds. He further notes that the survey results show “employers and advisors alike are increasingly becoming aware that outsourcing is a prudent, safe option that can work to the benefit of all parties.”
