As a business owner, you owe it to your employees to provide the best possible retirement plan. Many business owners understand the weight of this responsibility—and the potential liabilities—but some may not.

That’s why it may be prudent to outsource your company’s 401(k) responsibilities to a retirement plan service provider. When outsourcing your plan sponsor responsibilities, consider whether you are delegating or transferring those responsibilities:

  • Delegating under a service contract means the liability for a failure still falls on you, the plan sponsor.
  • Transferring to a fiduciary (a third-party entity that must act solely in the best interest of the retirement plan and its beneficiaries) means the fiduciary owns the responsibility, thus minimizing your potential liability.

If you do decide you want to transfer responsibility to a fiduciary, it’s important to understand the services this fiduciary provides. So, with that in mind, let’s look at what happens when you outsource your 401(k) duties.

Administrative Responsibility

The Employee Retirement Income Security Act (ERISA) of 1974 allows employers to outsource some or all of their administrative duties to third-party administrators (TPAs). For administrative purposes, ERISA details two sections that enable employers to grant TPAs varying degrees of responsibility.

  • A 3(16) administrator acts as a limited fiduciary to handle some of the administrative functions associated with running your company’s retirement plan. A 3(16) administrator can take some administrative duties off your plate, like handling enrollment, reporting and required disclosures.
  • A 402(a) Named Fiduciary provides the maximum amount of fiduciary relief allowed by law. The 402(a) Named Fiduciary takes charge of day-to-day operations, required compliance, and plan investments and can supersede a 3(16) administrator. Handing these duties off to a 402(a) Named Fiduciary frees your time to focus more on your business and can also shield you from any potential liability associated with failing to comply with ERISA regulations.

Investment Management

In addition to administrative functions, employers can also outsource the management of their plan’s investments to a fiduciary. The investment fiduciary oversees the selection, monitoring and replacement of the plan’s investment choices. And similar to the administrative side of things, ERISA provides for two levels of investment management outsourcing.

  • A 3(38) investment fiduciary has complete authority to select, monitor and replace a plan’s investments.
  • A 3(21) investment co-fiduciary works with the plan sponsor’s investment committee by making recommendations and providing oversight of the investment process.

Why Should I Outsource Fiduciary Duties?

If you’re a business owner who likes having more control over your company’s 401(k) plan, outsourcing plan fiduciary duties might not be for you. But if you feel overwhelmed by the number and magnitude of responsibilities that come with acting as a plan fiduciary, then you may want to consider outsourcing.

By transferring your retirement plan responsibilities to a third-party fiduciary, you can decrease the plan’s risk exposure and reduce your liability. Additionally, you can reduce the administrative and investment responsibilities by transferring oversight to retirement plan professionals.

Talk to a Wealth Enhancement Group advisor to find out more about how you and your business may benefit from outsourcing your company’s 401(k) responsibilities.


This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Bill Cannon

Bill Cannon

Director, Retirement Plan Consulting

AIF®, Series 7 & 63 Securities Registrations,1 Series 65 & 66 Advisory Registrations† Bill has more than 25 years of experience managing employer-sponsored retirement plans and individual retirement assets. He is responsible for maintaining a high-level of service for 401k and 403b clients, as well as nurturing the growth and development of this area. Beyond these specialties, his experience includes plan design consulting, administration, employee...Read More