Tag Archive for: plan administrator

Print Friendly Version Print Friendly Version

Updating the Plan Administrator

“In an M&A situation, where the acquiring organization does not assume the seller’s retirement plan, what is something that the selling company often overlooks with respect to its retirement plan?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in Minnesota is representative of a common inquiry related to company acquisitions and mergers (M&As).

Highlights of Discussion

M&A scenarios are notorious for treating retirement plans as an after-thought. Because little thought is given to plans in these situations, a great deal of confusion, many missteps and fiduciary risk arise. That said, failing to update the Plan Administrator—the person or entity that is authorized with plan service providers to make decisions related to the retirement plan—is a common oversight.

RLC consulted on a case where Company A purchased Company B in an asset sale and Company A did not take on Company B’s 401(k) plan. The person who had been identified as Company B’s Plan Administrator and signed the Forms 5500 no longer held that role after the acquisition. Months went by and the Plan Administrator role was not filled. That meant that the plan was in limbo, and the level of participant frustration was escalating, along with risk of Department of Labor involvement.

Until a new Plan Administrator was formally appointed and the proper documentation provided, the plan recordkeeper would not/could not make any decisions or take any actions with respect to the plan (for fear of fiduciary liability). The owners of Company B should have anticipated that after the sale, a new Plan Administrator would need to be appointed. Once the new Plan Administrator was officially installed, the plan was put on a course for payout and termination.


Little thought—if any—is given to retirement plans in M&A scenarios. Something as simple and common as failing to update the plan decision-maker (Plan Administrator) with service providers can render a plan dead-in-the-water.

© Copyright 2024 Retirement Learning Center, all rights reserved
Print Friendly Version Print Friendly Version

Buyer Beware: All Fiduciary Services Are Not Equal

Buyer Beware:  All Fiduciary Services Are Not Equal

Many financial organizations tout the benefits of their 401(k) fiduciary services and, frankly, many of these messages can sound irresistibly compelling. But buyer beware; not all fiduciary services are created equal. In today’s increasingly litigious environment, it is imperative for plan sponsors to be educated consumers of ERISA fiduciary services.  What does it take to be a wise consumer of fiduciary services?

Running a qualified retirement plan for employees is like running a business for clients. Just as with a business, the administrative responsibilities and liabilities of operating a plan are significant. The Department of Labor (DOL) views all business owners who sponsor retirement plans for employees as “3(16)” fiduciaries under federal law [ERISA Sec. 3(16)]. A 3(16) fiduciary is responsible for ensuring the plan is operated in compliance with the strict rules of ERISA day in and day out. One can say, the ERISA “buck stops here” on the 3(16)’s desk.

As fiduciaries, plan sponsors are held to the highest standard of care and must operate their plans in the best interest of participants. That means their actions with respect to their plans will be judged against the “Prudent Person” rule, which says that all decisions and acts must be carried out “… with the care, skill, prudence, and diligence…” of a knowledgeable person. The DOL assumes plan sponsors know what they are doing when it comes to running a plan—and if they don’t—they should seek out competent support or be at risk of a fiduciary breach. From an ERISA standpoint, a plan’s “Jack of all trades,” must be master of all—not none.

The DOL can hold plan sponsors personally liable for failing to fulfill their fiduciary obligations to their plan participants. Plan fiduciaries who fail in their duties can face costly civil and criminal penalties, too. Perhaps even jail time! All of this makes a strong argument for seeking expert help in running a qualified retirement plan. Thank goodness ERISA allows plan sponsors to outsource some of their 3(16) fiduciary responsibilities by formally appointing another entity to assume some of their plans’ administrative functions.

By engaging a 3(16)-plan administrator, the plan sponsor shifts fiduciary responsibility to the provider for the services specifically contracted (e.g., plan reporting, participant disclosures, distribution authorization, plan testing, etc.). It is important to note that a plan sponsor may never fully eliminate its fiduciary oversight responsibilities for the plan, and remains “on the hook” for the prudent selection and monitoring of the 3(16) plan administrator.

There are lots of organizations out there that peddle their outsourced fiduciary services (e.g., TPAs, trust companies, RIAs, etc.). The process of selecting a 3(16) outsourced solution must be carried out in a prudent manner and solely in the interest of the plan participants. The DOL requires the plan sponsor to engage in an objective process designed to elicit information necessary to evaluate candidates considering, but not limited to, the following:

  • Qualifications of the service provider,
  • Whether it has a consistent track record of service,
  • Its professional “bench-strength” and tenure of staff,
  • The quality of services provided and
  • Reasonableness of the provider’s fees in light of the services provided.

In addition, such process should be designed to avoid self-dealing, conflicts of interest or other improper influence. In the delicate area of plan administration, it’s prudent to go with the pros.


A plan sponsor can “outsource” some of its plan administration obligations under ERISA to an outside entity that is willing to assume the responsibilities of an ERISA 3(16) fiduciary of the plan.  It is not a decision to be made lightly as the DOL mandates the plan sponsor follow a prudent selection process that looks out for the best interest of plan participants.

© Copyright 2024 Retirement Learning Center, all rights reserved