What Crayola Color of 3(16) Does Your Vendor Provide?

Got five minutes? The topic of this blog post is covered in our Fiduciary Five Podcast series hosted by Chuck Hammond of the 401(k) Study Group. The Fiduciary Five Podcast…your fiduciary questions, answered in about five minutes.  To listen to the related podcast, click here.  

Back in 2016, I was very fortunate to be able to write a byline in this piece from 401(k) Specialist Magazine which discusses the value retirement plan advisors can bring when discussing the spate of “3(16) Services” available in the marketplace.  Recently, I was able to discuss this very topic with Chuck Hammond of the 401(k) Study Group on our ‘Fiduciary Five’ podcast series. 

Within the retirement services industry, we are comfortable with the complexity of the requirements and services made available to clients.  However, ‘basic’ to us is anything but ‘basic’ to our clients.  In fact, it can be quite confusing.  It’s understandable, clients are not experts in our industry, they are experts in their own line of work. 

We do funny things in our industry pertaining to marketing.  I’ve often heard that the most famous section of the Internal Revenue Code is section 401(k).   The trend that’s occurred in recent years is to take sections of ERISA and turn them into services and marketing terms.  We’ve all heard them; 3(21), 3(38) and the latest iteration, 3(16).

As a result, there is even confusion within the industry surrounding what constitutes a ‘3(16) administrator’ and what falls into ‘3(16) services.’  A lot has changed in the 3(16) space since writing that article just a few years ago.  The variety of ‘3(16) services’ that is now available in the market is so diverse that it would be akin to looking for a specific color in the Crayola Crayon universe (40 shades of blue alone on the Crayola website).   

The new consulting model for a retirement plan advisor now needs to include the traditional areas of recordkeeping/administration, investments, plan design and employee services, as well as whole new area on fiduciary services.  The skilled retirement plan advisor will be able to distinguish a ‘Named Plan Fiduciary’ such as a Discretionary Corporate Trustee or Plan Administrator from a ‘fiduciary service’ such as ERISA 3(38), 3(21) or 3(16) services providers.  This is a challenge, but also an opportunity, for advisors to be the resource that helps sponsors determine what menu of services are needed to achieve their goals and assist them with finding service providers best address those needs.  Note that the easier the service is, generally, the more commonly available and inexpensive it will be.  Advisors must help sponsors see the value, not just the cost, of services that will best help them achieve their goals.

In the years to come, as recordkeeping, third party administration and investment services continue to become increasingly commoditized, it will be these less common, high value and yes, premium fiduciary services that will separate the generic providers from the truly special ones.

Remember, if it’s confusing for industry, it is most certainly confusing for the clients and if your client’s not sure what color crayon your service provider is, it’s an opportunity to provide clarification, leadership and guidance.  Personally, I like Cerulean.

Jason Grantz is the Director of the Institutional Retirement Consulting Group at Unified Trust.  For more information about Unified Trust, its fiduciary services or information about this topic, please reach advisor services at advisor.services@unifiedtrust.com 

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