Offering retirement benefits is one of the best ways for a small business to stay competitive and increase profitability, but managing a 401(k) plan isn’t always simple. From keeping up with contributions and loan requests to the regular compliance responsibilities, 401(k) demands can quickly become overwhelming.  

That’s why more business owners are turning to 3(16) fiduciary services, or specialized support that takes on daily administration and compliance needs. Below, we break down what 3(16) services are, the growing challenges of compliance, and what business owners need to consider from their plan provider to simplify plan oversight.

Why 401(k) Compliance is a Growing Problem for Small Businesses

Small business owners already have a ton of demands to handle day to day, so 401(k) compliance only adds to this pressure. Here are a few reasons why compliance has become such a challenge:

  • Constantly changing regulations: The IRS and Department of Labor (DOL) regularly make updates to retirement plan rules, so owners are expected to always keep up.

  • New SECURE 2.0 Requirements: Rule changes regarding automatic enrollment, catch-up contributions, and long-term part-time eligibility means employers must be more hands-on if they don’t have extra help in-house or from the right plan provider.

  • Costly penalties for errors: Even the smallest mistakes can trigger fines, audits, and added liability.

  • Limited resources: Most small businesses don’t have dedicated HR or compliance staff to handle retirement plan challenges, so this work piles up fast.

What is a 3(16) Fiduciary?

The name comes from Section 3(16) of the Employee Retirement Income Security Act (ERISA), which defines the role and rules of a plan administrator. In simplest terms, a 3(16) fiduciary is an individual or service provider that is responsible for handling a business’ daily administrative and compliance functions. So, they’re doing everything from tracking employee eligibility and distributions, to submitting government-required paperwork, like the Form 5500.  

Without a 3(16), an employer would be considered the plan administrator, or the person who shoulders the liability if anything goes wrong with a 401(k). So, by appointing a 3(16), small business owners can have security and peace of mind knowing that their plan is being handled correctly.

How 3(16) Fiduciaries Save Time and Risk

As mentioned, a 3(16) fiduciary takes on your day-to-day, but most business owners don’t realize the full scope of responsibilities that get shifted off their plate. Here’s how a 3(16) makes an impact on your business:

  • Oversees plan documents and amendments and ensures they’re up to date.
  • Files Form 5500 on your behalf so you can avoid penalties.
  • Monitors loans, contributions, distributions, and withdrawals for accuracy.
  • Ensures yearly IRS nondiscrimination testing is handled, reducing audit risk.
  • Reduced overall fiduciary liability by covering compliance management.
  • Builds employee trust and satisfaction by keeping the plan on track.
  • Scales with your business, so your retirement needs are met at every stage.

How to Choose the Right 3(16) Fiduciary for Your Business

3(16) services heavily depend on the partner, so it’s important to choose the right provider that will meet your business needs. In many cases, your plan provider may even act as your fiduciary (like Ubiquity does, for example), giving you the convenience of a collaborator that will handle both your 401(k) and maintenance. Here are some key things to keep in mind as you explore your options:

  • Cost efficiency: Most providers charge based on an assets under management (AUM) model, meaning costs will go up as your employees save more. Look for a partner that offers a more transparent approach, like a flat-fee model.

  • In-depth ERISA experience: Make sure your provider has proven experience navigating the complexities of ERISA. They’ll be crucial in helping you maintain your plan up to IRS and DOL standards.

  • Streamlined integration: Between payroll, recordkeeping, and administration, your provider should be able to simplify any processes to minimize errors.

  • Dedicated support and clear communication: Choose a fiduciary that offers quality, responsive service and clear solutions to your questions.

It’s Time to Take 401(k) Compliance Off Your Plate

Think of a 3(16) as your next partner: The one that is ready to take on the heavy lifting, so your plan runs smoothly all year long. By outsourcing your most tedious tasks to a professional, you’re able to gain valuable time back, feel confident in your plan, and get back to protecting and growing your business.

At Ubiquity, our 3(16) fiduciary services are designed to augment our flat-fee, customizable 401(k) solution. They help small businesses simplify oversight, save money, and eliminate the burden of tackling plan administration alone.  

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