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What is the role of a 3(16) plan administrator?

401-k-3-16

One of the things that makes a HealthEquity Retirement 401(k) plan different than most is that HealthEquity Retirement signs and acts as your 3(16) Plan Administrator. As we explain this to prospective clients, especially those implementing a plan for the first time, they often ask questions about the role and responsibilities of a 3(16), so we thought we’d break it down for you.

Who is the 3(16) plan administrator?

If you sign the annual form 5500, then you are currently the 3(16) Plan Administrator. On most plans, the HR manager, company owner, or other company executive typically signs and acts in this role. As previously mentioned, the HealthEquity Retirement 401(k) solution is different as it appoints a plan administrator for you.

What is a 3(16) plan administrator?

A 3(16) Plan Administrator is an administrative fiduciary on a retirement plan as defined by ERISA section 3(16).  We like to affectionately call this role “the workhorse” or “the great communicator” because they manage the day to day operations of the plan. The majority of fiduciary tasks and plan communications are their responsibility. We’ve included a detailed list of those responsibilities below.

What are the responsibilities of a 3(16) plan administrator?

While the duties of a plan administrator are generally set by ERISA, they can also vary as they are defined by the plan document and related agreements.  Generally speaking, those responsibilities include the following: 

  • Review and Sign the annual Form 5500
  • Approve or reject loans & distributions in accordance with plan documents
  • Procure fidelity bond for the plan
  • Retain an auditor, attorney, or other experts to assist in administering the plan
  • Source and provide data for annual audit if required
  • Ensure timely submission of payroll file, transfer of funds, and filing of form 5330
  • Fix plan operational and compliance errors
  • Monitor and ensure adequate participant education
  • Track, apply, and communicate eligibility rules and actions
  • Manage plan force-out provisions in accordance with plan documents
  • Selection, documentation, and evaluation of plan service providers
  • Provide all service providers with complete and identical plan documentation
  • Perform and document annual reviews of all plan service providers
  • Document and respond to all service provider complaints
  • Assure and document all plan notifications and communications to participants
  • Periodic review and improvement efforts relating to plan participation
  • Store, maintain, and assure compliance with plan and trust documents
  • Track and comply with all regulatory changes and update plan to comply
  • Review annual TPA reports for accuracy and completeness
  • Review SAS 70 reports to assure TPA operations compliance
  • Review and monitor TPA and recordkeeping controls and account reconciliation
  • Annual review of potential fraud risks within plan
  • Ensure annual custodian issuance of 1099-R statements to all participants
  • Approve all plan expenses paid from plan in accordance plan documents
  • Monitor and benchmark fees & expenses paid from plan assets
  • Review and ensure that billings and expenses are correct and accurate
  • Respond to IRS & DOL inquiries in a timely manner
  • Respond to participant or plan sponsor questions in timely manner
  • Verify plan compliance with tax qualification requirements

What are the risks of being a 3(16) plan administrator?

As you can imagine there is a certain amount of risk associated with this role and its associated responsibilities. Most administrative mistakes on a plan are a result of an oversight by the 3(16) Plan Administrator. And when your plan gets audited by the DOL, IRS, or EBSA, not only is it the Plan Administrator that has to comply with the requests of the audit, but it is also their list of responsibilities and required tasks that are being scrutinized. Penalties from audits and necessary plan corrections are typically onerous and expensive and much easier to avoid than fix.

Should you be acting as a 3(16) plan administrator?

Ultimately, anyone can act as 3(16) Plan Administrator on your 401(k) plan and as a plan sponsor, you get to decide who that is.  But every plan sponsor should be asking these questions when appointing a 3(16):  Is this person qualified to fulfill this role? Does this person have time to fulfill this role? If the answer is no to either of these questions, you should certainly consider a solution that provides a 3(16) Plan Administrator for you. 

In addition to eliminating fiduciary risk and work for you, a good fiduciary can typically reduce your fees. This becomes possible when you have professional fiduciaries selecting, monitoring, benchmarking, and negotiating with plan service providers on your behalf.

 

This article was produced in collaboration with HealthEquity Retirement Services, LLC. HealthEquity Retirement Services, LLC is a wholly owned subsidiary of HealthEquity, Inc. Nothing in this communication is intended as legal, tax, nancial or medical advice.

Topics: retirement, 401(k), Financial Advisors

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