What is a 3(16) Fiduciary
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What is a 3(16) Fiduciary
Running a 401(k) plan can feel like a full-time job. Between government filings, compliance testing, and keeping employees informed, it’s a lot to manage. That’s where a 3(16) fiduciary comes in. If you’ve heard the term but aren’t quite sure what it means or how it can help your business, this guide is for you.
Determining which fiduciary option to use for your employer contribution will inform how your match works and what total amount your employees will need to contribute in order to receive their full match from you.
So, What Exactly Is a 3(16) Fiduciary?
A 3(16) fiduciary is a service provider that takes on the administrative responsibilities of your company’s 401(k) plan. The name comes from Section 3(16) of ERISA (the Employee Retirement Income Security Act of 1974), which defines the “plan administrator.”
A 3(16) fiduciary helps you handle the day-to-day tasks that keep your 401(k) plan compliant and running smoothly.
Your 401(k) adviser will typically help update both your plan document and your Summary Plan Description. You can also ask your adviser to help communicate any updates to your employer match during on-site visits and one-on-one meetings with your employees.
Why Employers Use 3(16) Fiduciaries
Let’s face it—401(k) administration is complex. From approving loans and distributions to filing the annual Form 5500, a significant amount of paperwork and legal responsibility is involved. Many employers don’t have the time or expertise to manage it all in-house.
That’s why outsourcing to a 3(16) fiduciary can be a smart move. It reduces your workload and helps protect your business from costly compliance mistakes.
What Services Does a 3(16) Fiduciary Provide?
Not all 3(16) fiduciaries offer the same services, but here are some common tasks they may handle:
- Determining employee eligibility
- Distributing required notices and disclosures
- Providing participant statements
- Fixing compliance testing errors (like ADP/ACP test failures)
- Approving and processing loans and distributions
- Signing and filing Form 5500
Some providers offer full-service 3(16) fiduciary support, while others may only take on a few of these duties. It’s important to know exactly what your provider is responsible for and what still falls on your plate.
Who Offers 3(16) Fiduciary Services?
Typically, third-party administrators (TPAs) or recordkeepers offer 3(16) fiduciary services. But just because you’ve hired a TPA doesn’t mean they’re acting as your 3(16) fiduciary. Always ask for clarity.
Look for providers who clearly state they take on fiduciary liability for administrative tasks. That’s the key difference between a regular service provider and a true 3(16) fiduciary.
There are also variations that can give the employer more flexibility in how they contribute to employee accounts. When thinking about an overall employer match rate, one major factor to consider is how your match style fits with your business goals.
Does a 3(16) Fiduciary Take on All My Liability?
Not quite. While a 3(16) fiduciary can take on legal responsibility for many administrative tasks, you’re still responsible for monitoring their performance. That includes reviewing their fees and making sure they’re doing what they promised.
Also, keep in mind that a 3(16) fiduciary doesn’t manage your plan’s investments. That’s where 3(21) and 3(38) fiduciaries come in. A 3(21) fiduciary gives investment advice, while a 3(38) fiduciary takes full control of investment decisions.
How to Choose the Right Fiduciary?
- When shopping for a 3(16) fiduciary, ask these questions:
- What specific duties will you take on?
- Will you sign and file Form 5500?
- Do you handle compliance testing and corrections?
- What’s your process for approving loans and distributions?
- How do you communicate with plan participants?
- Make sure you get everything in writing so there’s no confusion later.
- Is a 3(16) Fiduciary Right for You?
If managing your 401(k) plan feels overwhelming, a 3(16) fiduciary can be a game-changer. Just remember: not all fiduciaries are created equal. Do your homework, ask the right questions, and choose a partner who fits your needs. Click here to can learn more Fisher\SMB’s Fiduciary Services. 1
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