PSNC 2021: How Outsourcing Fits into Your Plan Administration

Today’s recordkeepers, advisers and plan sponsors all view outsourcing as part and parcel of a retirement plan’s day-to-day operations.

It used to be that managing operations was an all-or-nothing question for retirement plan sponsors. Sponsors would ask themselves, “Do we take on the expense of outsourcing the investment lineup or other part(s) of running the plan so that we can focus on running our company profitably instead of having to worry about this benefit? Or, do we have the expertise among our human resources (HR), legal and finance team (i.e., the chief financial officer, CEO or owner), and, perchance, the ability to leverage the expertise of a pension committee, to keep it in-house?”

Experts at at the virtual 2021 PLANSPONSOR National Conference (PSNC) session, “How Outsourcing Fits Into Your Plan Administration,” said this is no longer the question sponsors are asking themselves.

Today, outsourcing investments and other aspects of a plan, be it partnering with a retirement plan adviser specialist/consultant, an auditor or ERISA [Employee Retirement Income Security Act] lawyer, is a way of doing business for most retirement plans, and the question has, instead, become, “What do I ask when I issue an RFP [request for proposals] for an outsourcing partner?”

Where to Find a Fiduciary Adviser?

When the Anglican Church in North America was first looking for a fiduciary adviser, it issued an RFP that took years to pull back in, said Canon Alan Hawkins, chief operating officer (COO) of the Anglican Church in North America. To try to make sense of it all, the Anglican Church hired a pro bono attorney, but that didn’t do much good, either, Hawkins said.

The attorney threw around terms like Sarbanes-Oxley (which refers to breaking down the walls between banks and brokerage firms and is the name of a law that was passed in 2002), and “liability threshold.” These were “terms we were not very conversant in,” and that simply confounded Hawkins and the rest of his team, he said.

So, the Anglican Church in North America issued a new fiduciary RFP this past fall, seeking the expertise of either a 3(21) fiduciary, which gives guidance on which investments to put on the menu and leaves the final decision up to the sponsor; or a 3(38) fiduciary, which handles the entire process from start to finish and apprises the retirement committee of the reasons for its decisions. 

Now that the Anglican Church had a clearer idea of what to ask for in an outsourced fiduciary partner, it settled on a 3(21) fiduciary, Hawkins recalled.

Rich Rausser, senior vice president, client services at Pentegra, a retirement plan practice that provides both 3(21) and 3(38) services to sponsors, recalled how Pentegra once audited the past history of a plan and found $90,000 worth of IRS penalty letters. While the sponsor’s committee members might have had the institutional knowledge to remember penalty letters, none of them could have realized they added up to a whopping $90,000, he said.

This is why, when hiring a fiduciary adviser in particular, noted Curt Young, a partner at Aon Retirement Solutions, it is important to select one that can go through the rigors of a prudent process and put doing what is right for the plan and its participants front and center of everything.

Young noted that many sponsors are now hiring 3(16) fiduciaries, which are in charge of handling the detailed administration of a retirement plan, such as IRS and Department of Labor (DOL) audits and filing the Form 5500 with the IRS. “There are many new 3(16) players on the scene,” Young said. This is why sponsors might consider the advice, even if it’s just contractual, of a retirement practice such as Pentegra, he noted.

“Not all fiduciaries are created equal,” Hawkins added.

With the Setting Every Community Up for Retirement Enhancement (SECURE) Act and Coronavirus Aid, Relief and Economic Security (CARES) Act putting pooled employer plans (PEPs) and multiple employer plans (MEPs) on the scene, now, more than ever, these are new considerations for plan sponsors, and retirement plan specialists can help, Young noted. “Experience matters,” he said.

The bottom line when it comes to outsourcing a retirement plan responsibility, be it small or large, Hawkins said, is that it can result in tremendous growth and higher profits for a company or nonprofit organization.

Take the Anglican Church. Since working with a retirement plan adviser, it has experienced 40% growth in the number of churches participating in the plan, now totaling 400, with 1,000 church staff members.