What is often heralded as the next big thing often turns out to be a dud. I\u2019m still waiting for Tim Leary to be the next Tom Seaver for my New York Mets.<\/p>\n
Well for many in the retirement plan business, the next big thing may be ERISA \u00a73(16) fiduciary services, where someone (probably a third party administrator (TPA) or an affiliate) assumes the responsibility of administrator from the plan sponsor.<\/p>\n
The \u201cPlan Administrator\u201d of a qualified retirement plan is defined in section 3(16) of ERISA. The Plan Administrator should not be confused with a \u201cPension Administrator\u201d or a TPA.<\/p>\n
Unlike the TPA, the Plan Administrator actually has the following primary responsibilities:<\/p>\n
\u25e6\u00a0\u00a0\u00a0\u00a0 Ensures all filings with the federal government (form 5500, etc.) are timely made;<\/p>\n
\u25e6\u00a0\u00a0\u00a0\u00a0 Makes important disclosures to plan participants;<\/p>\n
\u25e6\u00a0\u00a0\u00a0\u00a0 Hires plan service providers if no other fiduciary has that responsibility; and<\/p>\n
\u25e6\u00a0\u00a0\u00a0\u00a0 Fulfills other responsibilities as set forth in plan documents.<\/p>\n
A TPA is delegated these responsibilities, but the plan sponsor bears the responsibility. The \u00a73(16) fiduciary\/administrator assumes that responsibility, as the plan sponsor outsources it.<\/p>\n
So this is a great space for TPAs to be in just like \u00a73(38) fiduciary services are a great space for registered investment advisors because it\u2019s just a notch (but a lot more liability) than what they are currently doing.<\/p>\n
Again, it\u2019s not a right fit for every TPA and not the right fit for every plan sponsor client (especially those that handle their role as plan sponsor well).<\/p>\n
Is it the next big thing? I think it\u2019s a great business because a year later, open multiple employer plans are pretty much dead and more plan sponsors want the opportunity to delegate some or most of their duties as plan fiduciary.<\/p>\n
\u00a73(16) administration is just another form of what is getting to be known as \u201c401(k) outsourcing\u201d.<\/p>\n
I think it\u2019s a growth spot for TPAs, especially for everyone who feels that fee disclosure is putting the squeeze on fees and profit margins<\/p>\n
My good friends at DALBAR offers certification of those that want to be \u00a73(16) administrators, I\u2019m sure CEFEX probably does as well.<\/p>\n
If you are a TPA interested in offering a \u00a73(16) service, feel free to call (agreements for the service are at a flat fee). Even if you are not interested in offering yourself, but interested in partnering up with a non-TPA who offers it, give me a call as well. \u00a0Sorry for the cheap plugs.<\/p>\n
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