If your medical practice either administers a 401(k) plan on their own or has a major payroll company do it on your behalf, what happens if someone makes a mistake? For example, if a disclosure isn’t issued, an employee dislikes their fees, or their portfolio begins underperforming, what happens? Due to the 2019 Secure Act, your medical practice could be liable for hefty fines. For example, according to section 402 of the Secure Act, penalties for failing to file retirement plans have increased from $15,000 to $150,000. And the penalty for failing to file an annual registration statement has, in some cases, ballooned from $5,000 to $50,000.
How can you avoid these kinds of penalties while simultaneously freeing up valuable time of internal key staff members to focus on other business related tasks? The answer is simple: 3(16) services.
What Are 3(16) Services?
With 3(16) services, you get a fiduciary who handles your 401(k) administration and assumes liability for any errors or oversights. In other words, you simultaneously get professional, knowledgeable experts administering your 401(k) portfolio and a layer of legal protection, so if something goes wrong, you’re in the clear. Plus, 3(16) services manage the day-to-day management of 401(k) plans which helps free up valuable time of key internal staff members to spend time on other business focuses.
The Benefits of a 3(16) Fiduciary
As you may know, a fiduciary has a unique role in the business world because every decision they make, by definition, has to be for the benefit of the plan participants and not themselves. A 3(16) fiduciary service fulfills the role as plan administrator, running your 401(k) plan on behalf of your organization. This comes with several key benefits, including:
- Organized, professional and systematic management of your 401(k) plan, freeing up time of your plan administrator to focus on other tasks within the business.
- Shift of DOL & IRS liability for the plan sponsor and admistror to the 3(16) Administrative Fiduciary
- Continuous monitoring of fees to ensure that participants are paying fair and reasonable rates
Why Are 3(16) Services So Important?
One of the most compelling reasons 3(16) services are so important is that the Labor Department, similar to the IRS, is actively engaging companies that fall short of the requirements outlined in the Secure Act. This means that if you or your service provider makes a mistake, you may fall under the Labor Department’s microscope, and they have the authority to levy weighty fines. Working with a fiduciary who handles your 401(k) administration helps offset this liability.
The Importance of Fee Benchmarking
Another benefit of hiring a 3(16) fiduciary service is the potential for 401(k) plan fee reductions. One of the important roles of a 3(16) Administrative Fiduciary is to monitor the fees and make sure the plan participants are paying fair and reasonable fees. With the rise of digital record keeping, automated administration systems, and the use of AI in records processing, forward-thinking plan sponsors are able to cut down their administrative costs significantly. As a result, you may pay less for your 401(k) administration, and your employees can keep more of their money. It’s important though, to continually benchmark fees charged to ensure you are not being overcharged. It is recommended that you benchmark fees every three years by the DOL.
Do you have further questions about 3(16) fiduciary services? Connect with Oakwell Wealth Management today to learn more.