What Responsibilities do Employers Retain After Outsourcing Plan Administration?

by FPG

The most important part of any benefits package is managing it in a way that is beneficial to your employees. Because a retirement benefit plan, like a 401(k) or 403(b) plan, requires you to meet an expert standard, more and more employers are outsourcing administration to third parties, sometimes known as fiduciary experts. Done properly, outsourcing can assure that the plan is well managed while relieving you of significant commitments and responsibilities. You can also save on time and overhead by not having to handle the day-to-day of plan activity.

However, even if you have properly outsourced these responsibilities, you still must:

Carefully monitor how your "prudent experts" are performing their duties. You are still responsible for their actions being prudent.

Retain ultimate decision-making authority for hiring and firing.

For example, if you outsource your investment oversight responsibility to an investment adviser (commonly referred to as a 3(21) co-fiduciary), your advisor will share liability as a co-fiduciary. It's up to you to make all final decisions.

Independently evaluate the suitability of their actions, expenses, and overall performance.

The most complete delegation of fiduciary and plan management responsibility you can make is to an ERISA 3(16) Plan Administrator that will assume, in varying degrees, responsibility for some or all plan administration. Any duties you have delegated become the responsibility of the 3(16) administrator, but you are still responsible for monitoring how well they perform those duties on an ongoing basis.

Delegating or outsourcing fiduciary duties can significantly reduce the time and resources you and your employees dedicate to managing your plan. Our in-house research indicates the normal range of 100-200 employee hours can be reduced to as little as 5-10 hours per year. That alone is reason to at least consider whether outsourcing can benefit you.