3(16) Fiduciary vs Pooled Employer Plans: Which Is Right for You?

A 3(16) fiduciary provider and a Pooled Employer Plan mean the difference between hiring an outside plan fiduciary or a plan allowing multiple plan sponsors. Both options help to relieve the administrative burden by allowing a third party to manage the ins and outs of your plan. But how do you know which choice is right for your business? We’re here to help break them down, so you can make the best decision.

Key Takeaways:

• A 3(16) fiduciary provider takes much of the administrative burden off the employer.
• The SECURE ACT of 2019 created Pooled Employer Plans.
• Pooled Employer Plans allow multiple unrelated employers to adopt the same plan.
• The Pooled Plan Provider acts as the plan administrator instead of the employer.

What is a 3(16) fiduciary provider?

The numbers 3(16) refer to the Employee Retirement Income Security Act of 1974, (ERISA), a section that outlines the role of retirement plan administrators. Some employers choose to hire a 3(16) fiduciary to help alleviate administrative burdens in operating their plan.

The 3(16) fiduciary acts as the plan administrator and assumes the administrator’s duties, including helping to keep the plan in compliance with ERISA requirements. Not all 3(16) plan fiduciaries offer the same services so it’s necessary for the employer to understand what their chosen plan fiduciary provides.

What are the benefits of a 3(16) fiduciary provider?

Hiring a 3(16) fiduciary unburdens you from having to manage the plan yourself. The fiduciary will handle numerous details, from filing the Form 5500 to processing certain plan changes and payroll data. Specific tasks will depend on what your 3(16) fiduciary offers. Additional benefits provided by a 3(16) fiduciary provider include:

• Keeping a plan design with greater flexibility to make changes: Working with a 3(16) fiduciary often gives you the chance to work collaboratively with them in determining your plan’s design.
• Greater investment flexibility: With a 3(16) fiduciary, you may also be permitted to choose from numerous investment fund options.

What is a Pooled Employer Plan and its benefits?

In 2019, the SECURE Act created Pooled Employer Plans. Pooled Employer Plans, (PEPs), allow multiple and non-related employers to enroll in the same retirement plan. In most

traditional plans, employers are the named fiduciary, in this instance, it would be the Pooled Plan Provider (PPP).

Enrolling in a PEP can have benefits such as:

• Less fiduciary responsibility: Typically, a PPP handles the fiduciary responsibilities associated with your plan. However, you must still ensure that your plan provider offers optimum plan administration and acts in the best interest of your plan participants and beneficiaries.
• Less employer administrative duties: Your PPP will handle plan document details, government form filings, and certain compliance matters. It is the employer’s responsibility to manage payroll matters; however, you can alleviate yourself of these tasks by working with a plan provider that offers payroll integration.

What are the drawbacks of a Pooled Employer Plan?

Though a PEP may be less costly to administer, the tradeoff is that your plan design becomes more generic, and all plan sponsors will share the same Pooled Employer Plan document.

What advantages do both plan types share?

SECURE ACT 2.0 allows all employers with 100 or less employees to potentially receive up to $5,000 in tax credit for establishing a new retirement plan. For employers with 50 employees or less, the tax credit is 100% of startup cost and administrative costs while employers with 51 to 100 employees receive a 50% tax credit. The funds received from this tax credit can offset retirement plan start-up fees.

Conclusion:

Whether you choose a 3(16) fiduciary provider or PEP, it’s your responsibility to ensure that your plan is operating lawfully and at a fair price. A 3(16) fiduciary provider will take care of your business’ needs.

Hiring a 3(16) fiduciary can help make your retirement plan administration a breeze. Not only do we provide a referral process to help you find a 3(16) provider, but we also provide educational resources to help you better understand your plan details.