Question for TPAs re: 3(16)

This is one of the very few times, I am asking for two cents on a specific situation instead of offering my two cents.

As I have discussed before, I believe that ERISA §3(16) administrator/fiduciary services can be one of the next big things out there. But it’s not the solution for all plan sponsors and it’s not a solution for some third party administrators (TPAs) to offer.

So my question is for TPAs. If for some reason you have no interest in offering 3(16) services (and there are a few reasons), would you offer the services of a third party who only offered 3(16) services? Just asking for a colleague of mine who is interested in offering a 3(16) service and does absolutely no TPA work.

Please let me know through e-mails, blog posts, or posts in LinkedIn.

Thank you.

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One Response to Question for TPAs re: 3(16)

  1. Ary: Laura and I are literally throwing stones at the 3(16) Fiduciary Service decision, every day. Recall that we discussed this topic with you on a conference call several months ago, and thanks again for giving us your “two cents. ” We hear of so many TPAs in the U.S. who have made this decision. While we pride ourselves as being leaders in our profession, we have been very, very hesitant at drawing a decisive conclusion on structuring a 3(16) service mode for our firm. We’re confident we could do it; we’ve been practicing over 26 years and have lots of qualified technical staff. It appears that there are a lot of pension practitioners out there who are just a lot smarter than we are on this, and surely, many other topics in our field (to include why we choose to be a poor non-producing TPA). One of the headwinds we keep encountering in the 3(16) decision is the argument that if we are offering our clients a technically-excellent TPA service, then they really don’t need an out-sourced 3(16) Fiduciary. If the Sponsor wants it, we will “do it” for a reasonable fee; but we do not look at the 3(16) service category as a means of bringing in lots of new revenue. (Hint: we are in the small business arena.) There are a number of more positive arguments for offering this new service category, to include (i) helping to retain clients from predators who will not normally offer a 3(16), (ii) helping to bring in new referrals from F.A.s who feel the 3(16) connotes a more capable TPA firm, and (iii) the notion that many Sponsors will be “content” to have one less fiduciary worry if the price tag is inoffensive. We hurriedly add the negative argument that the vast majority of clients “couldn’t care less” about what’s going on out there: 408(b)(2) and 404(a)(5) form the basis for just another Big Government headache; if they ignore it long enough, perhaps it will just go away.
    But your instant question is coming at us from a far different direction: the notion that a service firm with little or no experience as a TPA might want to solely structure an out-sourced 3(16) Fiduciary Service (with no attendant TPA service). I will propose a very simple answer: if this potential 3(16) Fiduciary Service Firm can timely obtain the volumes of requisite documentation inputs from the Plan Sponsor’s TPA firm which address the total possible realm of 3(16) tasks, and make the out-sourced Fiduciary judgments on the basis of their thorough review of these task completions (by the TPA firm), then there is a basis for standing at a short distance and proclaiming a service basis to be offered to a Plan Sponsor. The big “IF” in this matter is the word “DOCUMENTATION.” Again, we are reminded that any current or former participant could pose litigation, or any government agency might make a charge of fiduciary breach, but the important consideration is whether such can be successfully defended in a court of law. One big failure and you are outta there. Adequate documentation to prove innocence is the question. Big question.
    Dale Smith

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