Can a "3(16)" service help if a business owner is barred from serving as a fiduciary?

[Peter Gulia]

A recent BenefitsLink discussion considers whether a "3(16)" service for an organization unaffiliated with a plan's sponsor to serve as a plan's administrator would or wouldn't result in a meaningful reduction of liability that an employer-associated fiduciary otherwise might bear alone.

Assume a situation in which the employer's owner and chief executive is restrained by a court order that bars him or her from serving as a fiduciary of any ERISA-governed employee-benefit plan. Assume further that none of the employer's employees is willing to serve as a plan's administrator.

In those circumstances, could appointing (with court approval) a "3(16)" service provider as a plan's administrator help?

What do BenefitsLink commenters think about this?

[GMK]

Sounds like a case where the plan would be better served with 3(38), but then who picks the 3(38)?

[Peter Gulia]

To the extent that a plan requires investment-related decisions, the plan might also engage a 3(38) investment manager (and might select that manager with court approval).

But a plan must have an administrator.

So if no one associated with the employer will serve as a plan's administrator, could appointing (with court approval) a 3(16) service provider as the plan's administrator help?

[GMK]

Having seen comments on these boards that it is foolhardy for the employer to be the plan administrator, I assume there's a way to farm the whole plan out to others who have the full fiduciary responsibility for the plan, including as plan administrator. And the employer simply pays the bills as they come in.

If not, then it would seem that an employer without anyone to be the plan administrator has to terminate the plan, no?

[QDROphile]

To the extent you are referring to my incessant interloping comments that the employer should not be the plan administrator, the point is not that an owner, officer, or employee should not be the plan administrator. The main point is that naming the employer does not adequately identify the warm bodies who are supposed to have actual responsibility and fiduciary liability. "Employer" will be overinclusive or underinclusive, with overinclusive probably being the worst (e.g. making an independent director into a fiduciary). For a sole proprietor who intends to be the plan administrator, it probably is not an issue.