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I caught up with Troy Tisue the other day to ask him a question, “Why should you hire a 3(16)?”
That’s a topic we’ve been asking a lot lately to make sure TAG Resources is giving you the most thorough and complete reason to do so. Here’s Troy’s take on 3(16)s countering the responses he hears most often:

  1. “Too Expensive”
  2. “I can get a local TPA to add-on a 3(16)”
  3. “There is no need for a 3(16)— the TPA and RK (and FA) do all of this for me already”
  • “Too Expensive”

Cost is a relative thing.  You cut cost, you generally are cutting back on something.  When you’re dealing with other people’s money, it is a good idea (as a fiduciary) to really dig into what you’re paying for (or scaling back on) when you talk fees. Fiduciary Liability Insurance is a perfect example, as a 3(16) is the day to day operations component of a plan— insurance— protecting a Plan Sponsor from regulatory failures? Insurance can be one of those things, too, that you go cheap on… at least for yourself. However, when you weigh the impact of your decision on others, as in the case of retirement plans and Fiduciary Liability Insurance, you seldom take the cheapest route, as success becomes more important.

So again: too expensive relative to what?  To other 3(16) firms? This one is easy. How do the other 3(16) firms integrate (real time) with the RK?  How do they capture and police data? Are they named in the Plan Document or named in a service agreement? How long have they been offering 3(16) services to clients?  Experience is a big deal.  What kind of fiduciary-specific coverage do they have? Most firms are smoked out early with these questions.

I was at a recent TPA conference and in a fiduciary breakout session with 15 TPAs, 13 were offering some sort of 3(16) service.  4 were sending out notices.  Only one other firm collected payroll files (duplicates/ non-mapped) to police data. This firm was also the only other one to be named in the Plan Document. Only TAG also hired the Investment Manager. Only TAG had a fully integrated, proprietary system to track all plan/ participant data.
You get what you pay for. Measure twice, cut once. When people go low on 3(16) providers, it is ALWAYS because they (or their advisors) did not do enough homework.
  •   “I can get a local TPA to add-on a 3(16)”
 This one is coming up more and more as TPAs are entering the market with add-on fiduciary services. This is understandable. Business evolves and firms need to reexamine and evaluate their own offerings and value to their client bases. Much of what we see (in a competitive setting) are service agreement offerings. What I mean by this is that the functions that the TPA is willing to take on are very specific in nature so as not to be held to an over-arching fiduciary role. In the service agreement, the TPA may agree to approve loans and distributions, but will only be signing on to be a fiduciary for these specific things, for example. This is in direct contrast to what most, if not all, Plan Sponsors are led to believe when the model of ‘fiduciary outsourcing’ is explained to them. Here is the best commercial (from banking) that sums up the difference between a service / specific function / 3(16) Light version versus the real thing: https://www.youtube.com/watch?v=7GUPY4ZXZME People, rightfully, will feel duped once they understand the difference.

 

  •  “There is no need for a 3(16)— the TPA and RK (and FA) do all of this for me already”

Well, this one is tough. I never wanted to tell my kids about Santa and the Easter Bunny, either. I like to believe mermaids and unicorns could be real… somewhere. Sorry to tell you this, but, No.

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