The Educated 3(16) Fiduciary By Richard Rausser, Pentegra Many financial organizations tout the benefits of their ERISA 3(16) fiduciary services, and, frankly, many of these messages can sound irresistibly compelling. But buyer beware; not all 3(16) fiduciary services are created equal. In today’s increasingly litigious environment, it is imperative for plan sponsors to be educated consumers of 3(16) fiduciary services. Running a qualified retirement plan for employees is like running a business for clients. Just as with a business, the administrative responsibilities and liabilities of operating a plan are significant. The Department of Labor (DOL) views all business owners who sponsor retirement plans for employees as “3(16)” fiduciaries under federal law [ERISA Section 3(16)]. A 3(16) fiduciary is responsible for ensuring the plan is operated in compliance with the rules of ERISA day in and day out. One can say “the ERISA buck stops here” on the 3(16) plan administrator’s desk. As fiduciaries, plan sponsors are held to the highest standard of care and must operate their plans in the best interest of participants. That means their actions with respect to their plans will be judged against the “Prudent Person” rule, which says that all decisions and acts must be carried out “ … with the care, skill, prudence, and diligence … ” of a knowledgeable person. The DOL assumes plan sponsors know what they are doing when it comes to running a plan, and if they don’t, they should seek out competent support or be at risk of a fiduciary breach. From an ERISA standpoint, a plan’s “Jack of all trades” must be master of all – not none. The DOL can hold plan sponsors personally liable for failing to fulfill their fiduciary obligations to their plan participants. Plan fiduciaries who fail in their duties can also face costly civil and criminal penalties. Perhaps even jail time. This makes a strong argument for seeking expert help in running a qualified retirement plan. Thank goodness ERISA allows plan sponsors to outsource their 3(16) fiduciary responsibilities by formally appointing another entity to assume some of their plans’ administrative functions. By engaging a 3(16) plan administrator, the plan sponsor shifts fiduciary responsibility to the provider for the services specifically contracted (e.g., plan reporting, participant disclosures, distribution authorization, plan testing, etc.). It wvbankers.org 30 West Virginia Banker
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