In recent months TPAs have asked me with increasing frequency about expanding their service offerings to include 3(16) plan administrator services. They are feeling pressure from their clients to provide these services but understandably are reluctant to jump into a new business model that is new, untested, and to some extent uncertain.
These are the questions TPAs need to answer before taking the leap.

• How much are you willing and able to do as plan administrator? Service arrangements range from filing the annual return as plan administrator to accepting responsibility for interpreting the plan and other service providers.
• Can you price this service so that it is profitable for you and the cost reasonable to your clients?  You will be assuming greater responsibilities and liabilities. Your pricing should reflect the additional risk and consider the cost of E&O coverage and bonding.
  
• Are you willing to accept co-fiduciary responsibilities and liabilities?  As a 3(16) you will be an ERISA fiduciary required to act when you become aware of the bad behavior of other plan fiduciaries. Those other fiduciaries may plan sponsors and their officers and employees. Will you be able to stand up to them in the face of the possibility of losing their business? Do you want this potential conflict?
  
• Are you creating any conflicts of interest that violate ERISA or result in prohibited transactions?  As a fiduciary, for example, you cannot use your authority as a fiduciary to increase your own fees or receive compensation from other service providers to the plan.  
  
• Are you willing to put in the work and incur the costs associated with establishing legal documentation and written processes?  Your service agreements must carefully describe what you are responsible for and your client's responsibilities. There should be no ambiguity about who does what.  Imprecise agreements are a litigator's dream. You should also consider developing written procedures for your services that establish a “control” environment.  
  

For a complete treatment of ERISA fiduciary responsibilities, buy my book, A Guide to ERISA Fiduciary Responsibilities for Advisors and Sponsors of  401(k), 403(b) and Profit Sharing Plans by clicking here.

Baltimore Benefit Plan Meetings
On Thursday I will be speaking at the Tax Exempt/Governmental Entities Council meetings in Baltimore. This is an annual event that I always look forward to because it gives me the opportunity to listen to the views of government policy makers and to my brethren in the "art" of employee benefits. This year is no exception, and I am delighted to be presenting the truly important and current topic of plan administrator outsourcing. In my allotted time I will be focusing on the Report of the Advisory Council on Employee Welfare and Pension on plan outsourcing and the recommendations that were made in the report.  

Outsourcing is Worth a Careful Look
Outsourcing has piqued the interest of many plan sponsors because it gives them the opportunity to focus on their core business, shift responsibilities away from themselves to a third party expert, and limit fiduciary risk. For plan sponsors weary of weary of these burdens, this service is worthy of consideration. Advisors that want to add another quiver to their bow should also seek to understand outsourcing and find credible vendors to provide it for their clients that want the service.  

Look for My White Paper
In the next few weeks, I will be publishing a white paper for those who are considering plan administrator outsourcing arrangements. Please look for my announcement. For those that would like a copy of my meeting remarks, please email me.

I am very pleased to announce that Dalbar, Inc., one of the nation's leading financial services market research firms, is using my book, A Guide to ERISA Fiduciary Responsibilities in its Registered Fiduciary™ Certification Course. While many have praised the book, this is an "attaboy" of which I am truly proud. Thank you Lou Harvey and the other good folk at Dalbar.  

Dalbar Registered Fiduciary™ Certification 
For your information, Dalbar awards the Registered Fiduciary™ Certification to financial professionals who demonstrate their commitment to a standard of care by satisfactorily completing the coursework and meeting a number of other critical requirements. If you are a financial professional working with 401(k) plans, I urge you to find out more by using this link.

I want to hear from you . . .
I am always interested in your comments and questions. If you have a question about a previous blog, would like me to write a blog on a particular topic, or have a question about my book, please contact me. My phone number is 978-688-2162 and my email address is chumphrey@cghbenefitslaw.com. 

For a Copy of my Book
To purchase my book, please use this link.

In December of last year the United States Department of Labor (“DOL”) filed suit against a Rochester, New York based adviser for the taking of fees that he did not disclose to his 401(k) clients. The DOL complaint relates to "at least nine benefit plans" for which the adviser and a related company (100% owned by him) provided investment advisory and TPA services.
The adviser did a few things that ticked off DOL. He didn't:

• Tell his clients the TPA was receiving fees from the funds in which the plans were invested.
  
• Get independent consent to taking the fees.
  
• Offset the fees he received from the funds against the fees the TPA company charged his clients.
  
• Advise clients to switch to lower cost institutional shares from higher cost shares so that he could continue to pocket the higher fees.The moral of the story: 

Lessons to be learned

• For service providers, disclose all fees and get independent consent to taking them. If you are a fiduciary adviser, it should come as no surprise, you are required to act in your client’s best interest ---- not your own.
• For plan sponsors, directly ask service providers to tell you what fees they and related entities are receiving in connection with their services and make sure you understand what they are telling you. 
  
• Whether you are a plan sponsor or a service provider, if you haven't looked at your processes and procedures relating to the taking of fees, do so. 

Is a forced retirement in your future?
The rules have been known for some time now and the lessons are very obvious. There is really no excuse for not complying with them.  And consider the plight of the adviser. If DOL gets what it wants, the adviser will be forever barred from working with any type of benefit plan. This, I would argue, is not the best way to retire from the business.  

For a deep dive into ERISA responsibilities, read my book, A Guide to ERISA Fiduciary Responsibilities.

ERISA Advisory Council Recognizes Growing Importance of Employee Benefit Outsourcing Services

The recently issued 2014 Issue Statement for the ERISA Advisory Council of the U.S. Department of Labor recognizes for the first time governmental interest in the growing importance of employee benefit plan outsourcing of fiduciary and non-fiduciary responsibilities by plan sponsors.

I have blogged a great deal on this topic over the past year, in particular in the area of 401(k) plan outsourcing, and I welcome the Council’s interest in a topic that is likely to have broad implications for the benefit plan industry in the coming years.

The Council says that it intends to draft recommendations to the Secretary of Labor for consideration that will focus on:

1. Identifying current industry practices and trends regarding the types of services being outsourced (both fiduciary and non-fiduciary) and the market for delivery of those services, including differences in outsourcing practices by type of provider, plan size or plan type;
2. Clarifying the legal framework under ERISA for retaining outsourced service providers, including both plan sponsor and service provider responsibilities, and suggest areas where further DOL guidance might be helpful;
3. Making recommendations to DOL about current best practices in selecting and monitoring outsourced service providers, including identification of performance standards, benchmarking of costs and mitigating conflicts of interest;
4. For fiduciary services, exploring the differences between status as a fiduciary under ERISA section 3(16), 3(21) and ERISA section 3(38) and the scope of co-fiduciary liability in the outsourcing context;
5. Identifying current contracting practices with respect to outsourced services, including provisions such as termination rights, indemnification, liability caps, service level agreements, etc. that might assist plan sponsors and other fiduciaries in negotiating service agreements;
6. Examining insurance coverage and ERISA bonding practices of outsourced service providers to assist in understanding the extent to which risks are shifted from plan sponsors and other fiduciaries to service providers.

My colleagues and I at FPG will continue to be part of the discussion and look forward to the Council's recommendations.

My previous blogs on the topic: How Can 401(k) Advisers Use 3(16) Administrators to Advance Their Practices; Are 3(16) Plan Administrator Arrangements a Sham?; The 401(k) Plan Sponsor Capability Gap—Hearing the Buzz; 3(16) Plan Administrator Arrangements – Turning Gold into Platinum; and  A Proposed Code of Conduct for 3(16) Plan Administrators.

For a deeper dive into the topic and plan sponsor fiduciary responsibilities in general, you may want to read my new book, A Guide To ERISA Fiduciary Responsibilities – For Advisors and Sponsors of 401(k), 403(b), and Profit Sharing Plans.