The retirement plan industry ebbs and flows with trends. Many of the headlines over the past decade have concentrated on investment products, such as target date funds, risk-based allocation funds, and low cost exchange traded funds.
In recent years, the ramp up of services to “alleviate” the fiduciary burden on plan sponsors has burgeoned, with the majority of the offerings coming in the form of investment advisory and investment management functions.
The headlines are ablaze once again with a rapidly developing ERISA Section 3(16) plan administrator service model. In our recent post, The “Fiduciary” Fad: Can Anyone Be a Fiduciary?, the Roland|Criss team presented the case that: “With increased regulatory pressure from the Department of Labor, and seemingly ever-growing responsibilities for retirement plan sponsors, it’s no wonder that ‘turnkey’ fiduciary solutions are popping up everywhere.”
As the industry’s service providers over the years have proven to be quick to adapt and broaden service deliverables, a decisive factor must be considered: What risks do these newfangled “fiduciaries” bring to their plan sponsor clients?
A provider category, in particular, that is promoting a limited 3(16) service model is the third party administrator (TPA). Up until now, TPAs and recordkeepers have contractually specified that they are not ERISA fiduciaries. As a result, their services are captioned as “ministerial” in nature, not fiduciary. We have found inherent concerns among TPAs and plan sponsors about the conflict of interest risk created when a single provider serves in multiple roles. (The U.S. Supreme Court warned plan sponsors about “multiple hat” providers in Metlife vs. Glenn.)
Those concerns are legitimized when looking through the ERISA lens, as independence is a fundamental mandate for retirement plan fiduciaries.. There is a solution available for TPA service providers who want to: (i) do the right thing for its plan sponsor clients, (ii) maintain a key role in delivering value, and (iii) avoid engineering a breach of fiduciary duty.
When contemplating 3(16) and 402(a) named fiduciary functions, TPAs should consider the following:
- In the ERISA fiduciary landscape, liability follows discretion (and the comprehensive 3(16) role is fully discretionary);
- Good intentions can trip the breach of fiduciary duty wire; and
- A partnered model – TPA integration with a fully independent 3(16) provider – can be the best solution for TPAs and their plan sponsor clients.
Roland|Criss has tailored its Fiduciary GRCTM solution to align with TPAs in a way that delivers a conflict-free, comprehensive 3(16) fiduciary role. The TPA / 3(16) partnership keeps the TPA’s relationship with the plan sponsor intact, while providing the “back-office” 3(16) processes and discretion that the TPA (and the plan sponsor) need.
Sound too good to be true? Learn more on our website, at http://rolandcriss.com/what-we-do/services/fiduciary-grc, or contact us at 800-440-3457 or admin@rolandcriss.com.
