Unfortunately, not all retirement plan providers are created equal. As a result, choosing the wrong provider for your workplace’s retirement benefits can make administering your plan a difficult, error-prone endeavor.
Fortunately, however, there is an easy solution. To avoid the tedious and costly plan administration many companies face, employers can consider partnering with a provider that offers 3(16) fiduciary services, on top of the standard recordkeeping services most offer.
In this article, we’ll discuss what a 3(16) fiduciary is, review the services they provide, and demonstrate how small businesses can benefit from employing one.
The definition of a 3(16) fiduciary is fairly straightforward: They are a service provider hired by an employer to manage the day-to-day administrative work of a 401(k) plan. The complexity, however, lies in just how much work goes into administering a 401(k) plan. Not only does plan administration involve complex paperwork and constant communication, but also staying up to date with regulations that can change from year-to-year.
Put simply, retirement plan administration is incredibly hard, and 3(16) fiduciaries take on that responsibility for small businesses so they don't have to.
A 3(16) fiduciary may work with their small business client to conduct a full plan review before implementation of the plan begins. This can include a protected benefits analysis and assistance with the many benefits-related issues that arise in corporate transactions, such as mergers, acquisitions, or spinoffs. Beyond this, a 3(16) fiduciary may also provide cost comparisons to show their clients how different plan features can help them maximize savings while understanding the true costs of operating the plan. A 3(16) may even offer to draft plan documents that meet the sponsor’s unique goals and regulatory requirements.
A 3(16) fiduciary may also provide integrations with leading payroll providers, automatically deducting 401(k) contributions from employee paychecks without needing to switch to a new software. Some 3(16) fiduciaries go beyond even this. Vestwell, one of the few platforms that also offers 3(16) services, has patent-pending technology that tracks employees’ eligibility so they can be enrolled in the plan as soon as they’re eligible. Vestwell also confirms the distribution of welcome emails, required notices, fee disclosures, enrollment materials, and plan documents.
3(16) fiduciaries can also help perform a number of annually recurring compliance services. These include coordinating annual coverage and non-discrimination testing, as well as preparing and filing the Form 5500, the PBGC, and related IRS filings.
Some 3(16) fiduciaries also provide assistance with required amendments, restatements, and any corrections needed following annual compliance testing. Ongoing compliance support may also entail providing full correction assistance consistent with regulatory requirements.
Another service that 3(16) fiduciaries provide is handling of the entire loan, hardship, and distribution process, from receiving the initial request to monitoring repayments and any defaults. Additionally, this may include reviewing and rendering decisions regarding all participant and beneficiary claims, or managing all aspects of full or partial plan terminations and abandoned or frozen plans.
A 3(16) fiduciary may also manage the plan’s investment options by implementing the investment options selected by the plan’s investment fiduciary. They can communicate the plan’s default investment lineup and provide investment education materials, including fact sheets and comparison charts that participants can use when making their investment decisions. Some even offer investment management services, which include periodic benchmarking, monitoring a plan’s investment options, and providing full discretionary authority over the management and selection of the funds, including fund replacements.
If you’re a small business interested in setting up a retirement plan for your employees—a choice that can net significant tax savings—then you need to pick the provider who will meet your company’s unique needs. While some small businesses may be happy to shoulder the cost of plan administration, not every small business can.
However, the complexity plan administration does not have to be a barrier to offering a retirement benefit.
In addition to providing recordkeeping services, Vestwell is one of the only solutions providers that also comprehensive 3(16) plan administrative services. Every service listed in this article is offered by Vestwell, some of them uniquely so. By combining technology with best-in-class retirement plans, Vestwell has created programs that are more accessible, more efficient, and less expensive.
If you are interested in setting up a 401(k) account for your business, you can contact Vestwell to discuss the plan that would best fit your company’s goals, all from the comfort of your home. Interested? Learn more here.