A 401(k) plan administrator ensures your company follows all 401(k) rules and that your employees get the best available service for their 401(k)s. A 401(k) plan administrator works with legal documents, monitors plan operations, and performs analyses and tests related to retirement benefits. Learn about 401(k) plan administrator information, what to look for in a 401(k) administrator, and how to choose the right fit for your business.
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What is a 401(k) plan administrator?
A 401(k) plan administrator is a third-party administrator or entity responsible for managing the day-to-day operations and compliance of a 401(k) retirement plan on behalf of the employer and plan participants. The fees for a 401(k) plan administrator may be paid by employers, participants, or some combination of both.
In most cases, a 401(k) plan administrator is hired by an employer or company. As an employer, having a reliable 401(k) administrator can ensure compliance with the complex laws surrounding 401(k)s.
Responsibilities of a 401(k) plan administrator may include:
- Plan design
- Plan updates as needed
- Monitoring operations
- Authorizing transactions
- Performing tests, including discrimination tests, Actual Deferral Percentage( ADP) test, Actual Contribution Percentage (ACP) test, etc.
- Preparing filings and disclosures, including Form 5500, Summary Plan Description (SPD), and Safe-Harbor Notice
- Fixing problems if things don’t work
- Consulting to help employers navigate events like company mergers
Difference between a plan administrator and a plan sponsor
A 401(k) plan sponsor is typically the employer or organization that establishes the plan, and the plan administrator is a third-party entity hired to oversee administrative tasks such as recordkeeping, reporting, and compliance. Sometimes, the plan administrator and the plan sponsor are the same. In that case, the company manages all plan administration in-house.
Why a 401(k) plan administrator is important
While it is not mandatory to have a 401(k) plan administrator, their expertise and services significantly simplify the management of the plan, ensure compliance, and provide valuable support to both employers and participants. A 401(k) plan administrator can help ensure that your company doesn’t inadvertently end up with legal issues resulting from compliance failure or improper legal filings.
Additionally, a 401(k) administrator serves as the point of contact for employees, managing employee contributions and resolving any plan-related issues.
What 401(k) plan administrators do
Are you wondering what 401(k) plan administrators do? Their key responsibilities are outlined below:
Ensure compliance with all legal and regulatory requirements
Compliance includes the Employee Employee Retirement Income Security Act (ERISA), which sets minimum standards for voluntarily established retirement and health plans to provide protection for individuals in these plans. It ensures that companies also comply with IRS standards regarding who is eligible for participation, how much can be contributed, and when and how distributions are made.
Manage the day-to-day operations of the 401(k) plan
A 401(k) administrator’s primary focus is on the day-to-day operations of a 401(k) plan. This includes enrollment, contributions, and participant distributions. Plan administrators also answer questions and help employees access and understand plan benefits to ensure smooth operations.
Communicate regularly with plan participants
Communication is key for 401(k) plan administrators. You want employees to understand and take advantage of the benefits offered. Administrators answer plan participants’ questions and provide guidance on their retirement savings, including available employer contributions. Employee education about the benefits and features of the 401(k) plan is an additional vital role of a 401(k) plan administrator.
Implement and maintain recordkeeping systems
Maintaining rigorous standards for recordkeeping, accounting, and verification is crucial for ensuring the transparency and efficiency of 401(k) operations. For the purpose of accurately tracking and reporting participant information, contributions, and investment activity, the 401(k) plan administrator should have strong systems in place.
Coordinate with investment providers and financial institutions
A 401(k) plan is generally an investment account. The benefits come from the tax-free growth of funds. For this, a 401(k) plan administrator must ensure smooth administration of the plan, including monitoring investment performance and fees and offering a wide range of investment options.
Resolve any issues or disputes related to the 401(k) plan
Handling participant complaints or concerns is the responsibility of the 401(k) plan administrator. This frees up your company or HR department from dealing with these issues.
Conduct periodic plan audits
Periodic plan audits are essential to accurate reporting and fair plan practices. Self-audits and third-party audits can ensure that all required reporting and disclosures are completed accurately and on time, protecting your company and employees.
How to choose the right 401(k) plan administrator for your business
Companies at various stages of growth require different 401(k) plan administrators. Consider factors such as their experience, reputation, cost, range of services provided, level of customer support, and ability to adapt to the specific needs of your company and employees. Also check the investment options, as this can significantly impact long-term retirement growth.
A small business may only require a basic, low-cost 401(k) plan administrator, while larger companies can use the range of services of larger 401(k) administrators to attract and retain talent. Whichever option you choose, consider customer reviews and ask for references. Speak with other companies about their experience with the 401(k) administrator to choose the best option for your company.
How 401(k) plan administrators get paid
A 401(k) plan administration service is never free. Plan administrators typically get paid through a combination of fees charged to the plan participants and revenue-sharing arrangements with investment providers. Check with all 401(k) plan administrators to understand the costs and whether these are borne by your company or the employees.
Choosing a 401(k) plan administrator
The right 401(k) plan administrator can offer better investment options, strong administration, compliance, recordkeeping, and excellent communication. It can be an asset to attract and retain top talent and protect employees. Choosing a 401(k) plan administrator can help drive business growth while freeing employees’ time to focus on core business needs. In addition to selecting a 401(k) plan administrator, consider integrating high-yield savings accounts into your retirement planning to balance liquidity and investment growth. Then, consider retirement planning with your soulmate and learn to calculate how much you’ll need for retirement.
FAQ
Can you change your 401(k) plan administrator?
Yes, you can change your 401(k) plan administrator. To do this, you must undergo a deconversion in which the new provider takes over the plan.
What happens if your 401(k) plan administrator goes out of business?
When the 401(k) plan administrator goes out of business, the money will remain in the company’s plan and may be rolled over into a new plan selected by the company or your employer.
As a plan participant, how do you contact your 401(k) plan administrator?
Your employer’s human resources department or officer will be able to provide contact information for your 401(k) plan administrator. You can also check past 401(k) statements for account numbers or additional details like a phone number or the plan administrator’s name, and contact them directly.
