magnifying class focuses on world made of business people photos Sponsors need to know severalthings when considering the type of advisor to hire. (Photo:Shutterstock)

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The House of Representatives recently passed legislation that would make it easier for smallcompanies to offer retirement plans —and that means a new wave ofbusiness owners, finance executives and HR managers will soon belearning about the nuances between 3(38) and 3(21) fiduciaryservices.

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The House legislation, called the Secure Act, includes aprovision to simplify the process for small businesses to bandtogether and offer defined contribution plans. It also opens thedoor for part-time workers to become eligible for retirementbenefits.

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Improving access to retirement plans is a pressing issue for ourcountry, especially for employees working at small businesses. TheBureau of Labor Statistics estimates that 36 percent of full-timeemployees at companies with fewer than 50 workers are enrolled in aretirement plan. That number drops to 23 percent for part-timeemployees. Overall, 71 percent of non-government workers haveaccess to a retirement plan, but only 55 percent participate.

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With new legislation on track to become law, more workers thanever before will have an opportunity to save for retirement. Hereare three tips for sponsors to work with retirement plan advisorsto create a plan that best meets the needs of their most valuableresource – their employees.

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1. Know the different advisor responsibilities

Under the Employee Retirement Income Security Act (ERISA),retirement plan advisors generally fall under two categories: 3(21)advisor and 3(38) investment manager. The main difference is thefiduciary role of the advisor.

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A 3(21) advisor, for example, can provide plan sponsors with alist of funds, make recommendations as to which funds to use anddocument processes. A 3(21) advisor, however, does not havediscretion (the ability to make choices) on plan investments. Theplan sponsor acts in a fiduciary role by selecting investmentoptions for the company.

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A 3(38) investment manager, on the other hand, can perform thesame functions as a 3(21) advisor, but can take it one stepfurther. A 3(38) investment manager, as a fiduciary, hasdiscretion, and the authority, to make investment decisions onbehalf of your company.

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2. Understand plan sponsor liability

ERISA requires that plan sponsors serve in a fiduciary capacityand always act in the best interests of participants. When workingwith a 3(21) advisor, plan sponsors share fiduciary duties with theadvisor. The advisor can act as a co-fiduciary and recommendoptions for your retirement plan, but the plan sponsor isresponsible – and liable – for fund selection.

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A 3(38) investment manager assumes all fiduciary responsibilityfor fund selection and monitoring investments. Plan sponsors,though, aren't completely off the hook. They are still responsiblefor monitoring the manager's performance to ensure it meets thepolicies and procedures included in the plan's investment policystatement.

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In our experience, most company executives responsible forretirement plans do not understand their obligation as a fiduciary.But the Department of Labor, which enforces ERISA, is spending moretime scrutinizing retirement plans to make sure they are incompliance with federal law. Education, therefore, is critical tohelping sponsors select the appropriate role the advisor will playin managing and administering the plan.

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3. Evaluate company and participant needs

For plan sponsors who want to hand over control of selectinginvestment options for their employees – and the corresponding duediligence to evaluate fund suitability for participants – hiring a3(38) investment manager is often the best option.

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Establishing a company retirement plan, however, is more thanjust finding a partner to pick investment options. It involvespicking the right type of plan (a 401(k) or SIMPLE IRA, forexample), writing an investment policy statement, helping selectqualified recordkeepers and third party administrators andoverseeing quarterly investment committee meetings. While a 3(38)investment manager certainly can provide those services, so canmost 3(21) advisors.

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Launching and managing a company retirement plan is one of themost important decisions a company can make for its employees.Sponsors who correctly balance the resources of the company withthe needs of their employees will have a win-win plan that helpsparticipants save for retirement, while mitigating fiduciaryrisk.

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Argent Retirement Plan Advisors, LLC is an SEC registeredinvestment adviser. A copy of our current written disclosurediscussing our advisory services and fees is available uponrequest. Please See Important Disclosure Information at https://argentfinancial.com/disclosure.

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Ryan Barnett is vicepresident of Retirement Services for Argent / Heritage Retirement Plan Advisors, a RegisteredInvestment Advisor with the SEC that specializes in providingfiduciary and investment advisory services to employer sponsoredqualified and non-qualified retirement plans. Ryan has more than adecade of experience in the retirement plan industry as a legal andcompliance specialist and plan advisor. Before joining Argent /Heritage, he worked for InvesTrust Retirement Specialists as thedirector of Retirement Services. Ryan received his bachelor'sdegree in business administration from the University of Oklahomaand his law degree from the University of Tulsa.

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READ MORE:

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7 top issues facing plan sponsors andadvisors

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Even with Open MEPs, state-run IRAs,millions still without access to a workplace retirementplan 

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5 facts explain why small business owners don'tsponsor retirement plans — and why they would

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