ERISA 3(16) Fiduciary Responsibilities: Key Facts Employers Need to Know

Employers who offer 401(k) Profit Sharing Plans must meet standards of conduct and practice under ERISA, but misconceptions abound about 3(16) fiduciary responsibilities. Understanding the role of the 3(16) fiduciary and the limits of outsourced 3(16) services is critical for employers to be in compliance with ERISA rules and to make informed decisions about plan management.

Fiduciary Responsibilities for Employers on Profit Sharing Plans

As the named Plan Administrator, a 3(16) fiduciary is responsible for managing the day-to-day operations of the plan and for making sure the plan is in compliance. Unlike an ERISA 3(21) or 3(38) fiduciary that focus on the plan’s investments, a 3(16) fiduciary’s duties may include hiring and monitoring service providers, maintaining records and filing necessary reports, distributing annual notices, and other administrative functions. However, even if an employer hires a service provider to take on some of these operational tasks, the employer as the ‘Plan Administrator” is not absolved of primary fiduciary responsibility or exempt from liability. In fact, choosing a 3(16) administrator is itself a fiduciary task, and an employer who decides to go this route is responsible for exercising prudence and due diligence in the selection process. Employers must be aware of the important distinction between limiting their fiduciary burden versus removing it.

Thoroughly Evaluate Your Potential 3(16) Administrator

Many service providers who advertise themselves as 3(16) administrators provide some of the required functions, but the employer should thoroughly evaluate the services offered, the contract language, disclaimers, and limits of liability. The employer must ensure that any 3(16) administrator it hires is qualified, charges reasonable fees, and has the assets to settle legal claims in the event of litigation due to breach of its duties.

Monitor Your Service Provider's Performance

The employer must monitor the service provider’s performance on an ongoing basis and take prompt action if the service provider does not fulfill its responsibilities. Ultimately, the employer as Plan Administrator is responsible for the security of the plan and protecting employees and their retirement accounts.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations. 


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