Current Thinking

Fixing What Others Fear

No surprises. That is the objective plan sponsors should strive for when it comes to managing a retirement plan. With all the moving parts associated with retirement plan administration, it’s easy to miss things. The reality is that mistakes can and do happen, and when they do, plan sponsors, as fiduciaries, can be held responsible.

Administering a retirement plan carries with it a fiduciary duty to act with the highest standard of care. The Employee Retirement Income Security Act of 1974 (ERISA) requires fiduciaries—like the plan sponsor—to act as a prudent expert when making all plan decisions. But it is difficult to be a jack, let alone a master, of all trades when it comes to running a retirement plan. Let’s face it—the larger the plan, the more complex the issues. That’s why a growing percentage of 401(k) plan sponsors outsource many of the day-to-day administrative duties to a 3(16) fiduciary services provider.

An ERISA Section 3(16) fiduciary is a person or entity that takes on the responsibilities and shared liability for administrating a retirement plan. A 3(16) fiduciary can hold a valuable portion of the financial wellness of the client’s business and its employees in its hands.

With our extensive experience as a fiduciary, Pentegra can identify issues that often elude others. We’re skilled at finding plan issues before they become problems—saving clients from significant fines and penalties. In fact, in 2021, we helped clients file 12 Voluntary Correction Program (VCP) applications and avoid over $1 million in penalties.

Some of the ways we do this for plan sponsors are illustrated in the real-life case studies that follow.

The Hot Mess

Plan conversions can be vexing. One case our team took on was a plan conversion that they nicknamed, “The Hot Mess.”  There were many challenging aspects to the case:  The plan applied prior- vs. current-year testing, and many of the data points were questionable, inaccurate, or unavailable. At risk was $1.5 million leaving the plan. Initially, it looked like the plan would have to return substantial participant deferrals and forfeit matching contributions. But Pentegra’s team went to work and, by applying the IRS’s correction standards, was able to avoid disqualification of the plan and reduce the correction price tag to just $11,000.

The moral of the story: Extra sets of expert eyes and a second professional opinion are well worth it.

The $2.30 Fix

What can $2.30 buy?  A lot! Recently, when onboarding an incoming plan our team discovered a 401(k) plan that had failed the actual deferral percentage (ADP) test. With the right document provisions and compliance know-how, there are different ways to correct ADP issues, including refunding elective deferrals to highly compensated employees (HCEs), shifting or “re-characterizing” elective deferrals as after-tax contributions to HCEs, and/or making employer contributions on behalf of the non-HCEs in the plan. After evaluating the options, the Pentegra team laid out the solutions.  The plan sponsor’s choices were:

  1. Refund $41,000 to HCEs


  1. Make an employer contribution of $2.30 to the non-HCEs.

Easy choice, right?

Integrity Saves the Day

Even more gratifying than fixing plan problems after the fact, is discovering and avoiding them in the first place—before they become real issues. That’s where the “Data Integrity Report” comes into play. We like to refer to it as our ‘No Surprises’ assessment of all available plan information. Our team looks at plan data two times per year (in May and November) and projects whether the plan will pass or fail its compliance testing.  If the data is off or things are not looking good, the team gives the plan sponsor a “heads up,” and suggests corrections early on. It could be something as simple as a fixing a wrong birth date for a participant or applying the proper definition of compensation from the plan document. Or the necessary action could be more drastic such as reducing or stopping deferrals. More than once the Data Integrity Report has saved the day.

There are many financial organizations that offer outsourced 3(16) fiduciary services, but not all 3(16) fiduciaries are the same. A true 3(16) fiduciary relieves the plan sponsor of plan administrative responsibilities, reduces liability risk, and improves plan outcomes, all while allowing the business owner to spend more time on other areas of their business.

About the Author

Richard Rausser

Richard W. Rausser has more than 30 years of experience in the retirement benefits industry. He is Senior Vice President of Thought Leadership at Pentegra, a leading provider of retirement plan and fiduciary outsourcing to organizations nationwide. Rich is responsible for helping to shape and define Pentegra’s viewpoint on workplace retirement plans, plan design strategy, retirement success and employee savings trends. His work is used by employers, employees, advisors, policymakers and the media to produce successful outcomes for American workers.  In addition, Rich is responsible for Pentegra’s Defined Benefit line of business, which includes a team of Actuaries and other retirement plan professionals as well as Pentegra’s BOLI line of business.  He is a frequent speaker on retirement benefit topics; a Certified Pension Consultant (CPC); a Qualified Pension Administrator (QPA); a Qualified 401(k) Administrator (QKA); and a member of the American Society of Pension Professionals and Actuaries (ASPPA). He holds an M.B.A. in Finance from Fairleigh Dickinson University and a B.A. in Economics and Business Administration from Ursinus College.