3(16) fiduciary (plan administrator)

What a 3(16) fiduciary is

Section 3(16) of ERISA defines the “administrator” of a plan as the person named for that job in the plan document, and the plan sponsor if no one is named. The administrator is responsible for operating the plan according to its terms: signing and filing Form 5500, delivering required notices and disclosures, deciding eligibility and claims, and approving loans and distributions.

Employers can hire a provider to accept this role in writing. The scope varies. Some providers take on the full administrator role, and others accept a specific list of duties and leave the rest with the employer.

Why it matters to employers

Administrative errors are the most common way plans get into trouble: a late filing, a missed notice, an employee enrolled late. A 3(16) provider that has accepted responsibility for a task is accountable for doing it correctly. What it does not remove is your duty to select and monitor that provider prudently, or your responsibility for the data you send. A provider cannot file accurately from an incomplete census.

Example

A service agreement lists the provider’s 3(16) duties as: preparing and signing Form 5500, sending annual notices, approving distributions and loans, and tracking eligibility. Depositing contributions on time is not on the list. A late deposit is still the employer’s responsibility.

Common mistakes

• Assuming “3(16)” means the same thing with every provider. Read the list.

• Confusing a 3(16) administrator with a third-party administrator (TPA). Many TPAs do the work without accepting fiduciary responsibility for it.

• Expecting a 3(16) fiduciary to choose investments. That is a 3(21) or 3(38) role.

• Not reviewing the provider’s work each year.