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Outsourcing: The Wave of the Future for Advisors

More and more plan sponsors are looking to third parties to outsource as much of their fiduciary responsibility under ERISA as possible, especially after the Tibble case.

At the same time, more plan advisors are looking to show value by taking on more work. This certainly makes sense; while many small and mid-size companies are not properly staffed or trained, an advisor can more efficiently create and manage shared services.

In a thoughtful article, Mike Barry lays out the choices that companies face when considering outsourcing ERISA fiduciary responsibilities as well as liabilities.

Barry suggests that there are three choices:


  • Traditional — delegation of duties usually associated with 3(21) services but can also include 3(38)

  • Plan Documents — naming the outsourced fiduciary in a plan document

  • Liability — shifting costs of fines to the outsourced fiduciary


Regardless of the arrangement, the plan sponsor has the responsibility to select and monitor the outsourcer. SHRM recently published a list of those responsibilities, considerations when selecting a third party as well as warning signs. And Marcia Wagner has detailed considerations when selecting a 3(16) fiduciary who talks on administrative duties.

With unaffiliated MEPs under scrutiny by the DOL, does a 3(38) combined with 3(16) outsourcing arrangement get a plan sponsor closer to relieving most of the burden of running a plan under ERISA?

With HR departments getting even leaner and liability rising, look for outsourcing to increase and for more advisors to become outsourcers — and not just for investment selection and monitoring.

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