More Focus, Less Risk: The Case for Partnering with an ERISA 3(16) Administrative Fiduciary
Navigating Fiduciary Risk: What Every Advisor and Recordkeeper Should Keep in Mind
When it comes to retirement plans, there’s no shortage of complexity—and no shortage of risk, especially when it comes to fiduciary responsibilities. That’s why more and more plan sponsors, advisors, and recordkeepers are turning to ERISA 3(16) administrative fiduciaries for help. By working with a “3(16) fiduciary,” plan sponsors can delegate many of the day-to-day administrative burdens and reduce their exposure to liability. But the benefits don’t stop there—recordkeepers and advisors can also gain a more efficient, compliant, and lower-risk environment to operate in. With a 3(16) fiduciary in place, everyone can stay focused on their core responsibilities without accidentally stepping into fiduciary territory.
The Reluctance Around Fiduciary Responsibility
Many third-party service providers go out of their way to avoid fiduciary responsibility— understandably so. Just read their contracts: most are packed with disclaimers clearly stating something along the lines of, “We are not a plan fiduciary. We do not perform fiduciary functions. You cannot sue us for any breach of fiduciary duty.”
Fair enough. But that raises a good question: why are so many providers so eager to sidestep fiduciary status in the first place?
Why the Term “Fiduciary” Carries So Much Weight
Under the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries are held to some of the highest legal standards in the U.S. They’re expected to act solely in the best interests of plan participants and beneficiaries—placing those interests above their own, at all times. And if they breach that duty? The consequences can be serious.
So, it’s no surprise that many who work with retirement plans—especially recordkeepers—are cautious. Even if you’re not contractually a fiduciary, a misstep or performing fiduciary-like functions can land you in a role you didn’t ask for.
How Service Providers Avoid Fiduciary Liability
Most plan service providers design their services—and their contracts—very carefully to avoid fiduciary responsibility. Take a typical 401(k) recordkeeper, for instance. They might handle participant-level accounting, investment tracking, and contribution processing. These are all considered “ministerial” tasks that don’t require discretion, meaning they stay safely outside what is considered a “fiduciary.”
Even when additional services are added, like loan or distribution processing, providers typically only act once the plan sponsor gives the green light or after following a strict pre-approved process. Again, no discretion = no fiduciary duty.
But It’s Still Possible to Accidentally Become a Fiduciary
Here’s the catch: under ERISA, it’s not just about what your contract says—it’s about what you actually do. If you act like a fiduciary, under ERISA, you are considered one.
Specifically, ERISA Section 3(21) says you’re a fiduciary if you:
- Exercise any discretionary authority or control over the plan or its assets,
- Provide investment advice for a fee, or
- Have discretionary authority in plan administration.
So even if your agreement says you’re not a fiduciary, your actions might say otherwise. And therein lies the danger.
Enter the 3(16) Fiduciary: A Smarter Way to Manage Risk
Beyond the standard fiduciary roles, ERISA also defines another key player: the ERISA 3(16) plan administrator. This individual (or entity) takes on responsibility for many day-to-day plan operations—responsibilities that often fall to the plan sponsor by default.
When a sponsor designates a 3(16) plan administrator, they’re not just offloading tasks—they’re putting those tasks into the hands of a dedicated fiduciary. This makes life easier for everyone involved, including recordkeepers. Why? Because recordkeepers often find themselves helping plan sponsors who don’t know what they’re doing, and in the process, may inadvertently cross the fiduciary line themselves.
With a 3(16) fiduciary in place, those administrative gray areas can disappear. Recordkeepers can focus on their core job—providing accurate, efficient plan data—without the risk of assuming duties that could come back to haunt them.
The Pentegra Difference
While many service providers do everything they can to sidestep fiduciary responsibility, Pentegra has built its business around it. With over 80 years of experience in the retirement plan space, we bring unmatched depth and proven expertise to our role as a named ERISA 3(16) fiduciary. We don’t just take on administrative tasks—we take on legal responsibility, helping plan sponsors reduce their liability, improve compliance, and focus on running their businesses.
But the benefits go far beyond helping sponsors. For recordkeepers and advisors, working with Pentegra means having a seasoned fiduciary partner who understands plan operations inside and out. We help streamline communication, ensure regulatory alignment, and take the pressure off service providers who might otherwise be pulled into gray areas of fiduciary responsibility. That means fewer risks, smoother workflows, and more time to focus on your core competencies.
Let Pentegra do the heavy lifting. Contact us to learn how our 3(16) fiduciary services can protect your clients—and make your job easier.