Managing fiduciary responsibilities is an ongoing concern for all plan sponsors. Many of them might not be aware that they can outsource some of those responsibilities to help them remain in compliance. Plan sponsors can choose various levels of fiduciary outsourcing: complete outsourcing through a 3(16) professional plan administrator or outsourcing just a component of a plan fiduciary’s responsibilities. As advantageous as this might sound to many plan sponsors, a PLANSPONSOR discussion with Joe Frustaglio, vice president of private-sector retirement plan sales for Nationwide Financial; Rich Landsberg, director in the Advanced Consulting Group for Nationwide Financial; and Jeff Atwell, senior vice president of Trust Retirement Division American National Bank of Texas, showed that the decision to outsource requires serious thought and due diligence.
PS: How can a plan sponsor determine whether to outsource any part of the fiduciary function?
Frustaglio: Plan sponsors have varying comfort levels and resources when it comes to managing their fiduciary responsibilities. When considering outsourcing fiduciary responsibilities, plan sponsors, should evaluate: 1) whether they have the time, knowledge and resources to retain that responsibility within their firm; 2) would they want to outsource a part of the responsibility; or 3) do they want to outsource as much as the law and regulations allow?
Let me use a car analogy: When you purchase a new car, you have a responsibility to maintain that car to ensure its performance. If you are not an automobile expert, that responsibility requires you to find the right experts and professionals.
It’s very similar for a plan sponsor. They have responsibility for the plan’s performance and many times must seek out the professionals who can help them maintain the plan and ensure plan performance.
PS: What options do plan sponsors have in outsourcing fiduciary functions?
Landsberg: When it was created, the Employee Retirement Income Security Act of 1974 (ERISA) envisioned multiple fiduciary service providers. So, in ERISA not all fiduciary duties are vested in one person or entity. In terms of expertise, all aspects of plan management and operation generally aren’t going to be vested with one person. You can delegate to others, including a 3(16) plan administrator, a 3(38) investment manager and a 3(21) investment adviser.
PS: Is there a best candidate for outsourcing, and if so, who is it?
Atwell: The best candidate is a plan sponsor that is concerned by the fact that the plan has three regulatory components that must be adhered to at all times: the Internal Revenue Code (IRC) and the regulations thereunder, ERISA and the regulations thereunder, and the plan document. To ease concerns and ensure compliance with those three regulatory components, plan sponsors should seek out professionals to assist them in that regard, such as third-party administrators (TPAs), quality recordkeepers and named fiduciaries.