Help Clients Find the Right 3(16) Fiduciary Provider

Delegating tasks to a 3(16) fiduciary may be a top concern for many of your clients. You can play a vital role by helping them select the right provider.

The challenge is identifying that provider and ensuring adequate and cost-efficient coverage. And remember, choosing a provider is still the fiduciary responsibility of the plan sponsor.

Add value to your business relationship by helping clients understand exactly what they’re getting for their investment in fiduciary coverage. Providers of 3(16) administrative fiduciary services offer varying levels of coverage. Some may approve and process participant distribution and loan requests. Tracking employee eligibility and conducting compliance testing are other services they may offer. They can also deliver required event-related and annual notices, including those for participants who become newly eligible to join a plan.

Get the Answers

As you’re evaluating a 3(16) provider, run through these questions:

• What administrative services do you provide?
• For which of those services do you accept fiduciary responsibility?
• What is the extent of your covered liability?
• Do you put your fiduciary commitment in writing?
• How much experience do you have with 3(16) services?
• What is your process for ensuring your fiduciary obligations are met? What checks and balances do you have in place?
• What kind of fiduciary liability protection do you carry?
• What are your costs for each service?
• Can you provide a sample contract?

Other questions related to the plan document are also important. Is there a named fiduciary, and who is it? Does this fiduciary have the authority to hire others? Clients who do hire a named fiduciary must remember to update the plan document with that information.

Confirm the Details

Another way to help clients is to advise them to scrutinize the contract with a new provider. Confirm the services being covered, review the provider’s limits of liability and look for hold harmless language.

As an example, this is the indemnity language from contracts at The Standard:

“We agree to indemnify and hold you harmless from and against all claims, actions, obligations, damages, liabilities, penalties and expenses, including reasonable attorney’s fees, asserted against you to the extent such claims, actions, obligations, damages, liabilities, penalties and expenses are the direct result of our default of our responsibilities under this agreement, provided that you notify us promptly of the commencement of such action and cooperate as reasonably necessary in any defense.”

Speak to your local consultant to learn more about hiring a 3(16) fiduciary.