401(k) Plan Administrator
When a company is providing a 401(k) plan for its employees, there needs to be someone who manages the fine details, from daily administrative tasks to compliance requirements. A 401(k) administrator is tasked with handling every aspect of plan administration, ensuring that a plan will run in an effective and efficient manner. Below, we’ll explain what plan administrators are, as well as their duties and responsibilities.
What Is a 401(k) Plan Administrator?
A 401(k) plan administrator may be an internal member of the organization offering a 401(k) plan or a third party. Their main responsibility is to make sure a retirement plan complies with the IRS requirements for a plan sponsor, including communications, plan maintenance, and disclosures. Their duties include working with legal documents, performing analyses and tests, and monitoring plan operations. 401(k) administrators may charge certain fees, which are paid by employers, participants, or both.
A 401(k) plan administrator is responsible for managing an employer’s retirement plan. Since there are numerous responsibilities and liability risks involved in running a 401(k) plan, the task is usually outsourced to a third-party administrator.
If you’ve been sponsoring or participating in a 401(k) plan, you’ve probably heard the term “fiduciary.” In general, a fiduciary is an individual or entity entrusted with handling another party’s funds or assets. For retirement plans, there are several different types of an administrative fiduciary. An ERISA 3(16) fiduciary is responsible and liable for the daily management of a 401(k) plan, while an ERISA 3(38) makes investment decisions on behalf of sponsors to help participants increase their retirement savings. Human Interest can help you learn more about fiduciaries and the benefits of hiring one.
What Does a 401(k) Plan Administrator Do?
From the very beginning, your plan administrator will be there to help your organization structure its offerings. Who is eligible to participate? Should you offer both traditional and Roth 401(k) plans? They may also provide advice on plan design to make sure your plan will be both compliant and competitive. This means they may be involved in designing your profit-sharing or employer matching program as well.
While the responsibilities of a 401(k) plan administrator may vary significantly depending on service agreements and other factors, most administrators are expected to perform the following duties:
- Offer advice on the initial design of a 401(k) plan.
- Prepare a summary plan description to help participants and beneficiaries better understand the plan.
- Approve transactions such as loans, distributions, and others.
- Monitor the plan to ensure compliance with federal regulations and plan rules.
- Conduct discrimination testing and provide audit support.
- Perform compliance filings, such as Form 5500, Form 1099-R, and safe harbor notices.
- Generate annual participant census.
- Communicate with participants on a day-to-day basis.
Once you’ve set up your company’s 401(k) plan, you have to perform many tasks to maintain it. One of these tasks is monitoring employee contributions and distributions to make sure they comply with both federal regulations and the plan’s rules. A 401(k) administrator is also responsible for handling employee status changes. When employees lose or gain eligibility as they depart or join the company, the administrator has to ensure those changes are accurately reflected.
Offering a 401(k) plan is an effective way to give your company an edge in a competitive talent market, but it comes with a wide range of reporting and record-keeping requirements. 401(k) administrators are tasked with making sure every box is checked. From conducting nondiscrimination tests to preparing compliance documents such as Form 5500 and safe harbor notices, they perform the necessary tasks to keep your plan compliant with state and federal regulations. As rules and regulations change over time, they’re required to update your plan accordingly.
401(k) Plan Administrator vs. 401(k) Plan Sponsor
Administering a 401(k) plan requires the combined effort of many players with different roles and duties. However, the greatest obligation is the fiduciary duty of the employer as the 401(k) plan sponsor. Sometimes, plan sponsors may not be aware of their responsibilities as fiduciaries, especially when it comes to choosing and overseeing the service providers for their plans. Often, employers assume their service providers are responsible for certain tasks. Nonetheless, when issues arise, they realize those tasks are part of their responsibilities as plan sponsors.
As such, it’s essential to have a clear understanding of the roles of the main players in the administration of a 401(k) plan or other similar employer-sponsored plans. First, a 401(k) plan sponsor appoints an officer or employee as the fiduciary, which is more widely known as the plan administrator. Outsourcing some duties to service providers is a common practice, but the ultimate responsibility for any outsourced tasks remains with the 401(k) plan sponsor and administrator. Below is a list of the responsibilities of a 401(k) plan’s key players.
Plan Sponsor (Employer):
- Starts a plan and offers it to employees.
- Names a plan administrator or fiduciary.
- Makes sure the plan is compliant with all applicable laws and regulations.
- Timely submits remittance of employer and employee contributions.
- Reports contributions through the W-2 Forms of employees.
Plan Administrator or Named Fiduciary:
- Makes sure the plan is administered according to plan documents.
- Executes and oversees the plan on a day-to-day basis.
- Serves as the plan’s record keeper.
- Keeps track of plan strategy.
- Prepares and issues Form 1099-R to plan participants.
- Produces annual participant census.
- Conducts compliance testing at the end of each year.
- Prepares and submits Form 5500 to the Internal Revenue Service (IRS) annually.
- Obtains fidelity bonding if necessary.
Who Is Your 401(k) Plan Administrator?
So, who should be your 401(k) plan administrator? The administrator can be an individual, a committee made up of executives, or the employer. From a risk management standpoint, it’s best to avoid appointing the employer as the plan administrator so that the board of directors and officers won’t be held liable as plan fiduciaries. In this case, the plan document will state that the employer will appoint an administrative committee as the plan administrator. Of course, the employer is still responsible for monitoring the activities of the committee.
If you want to learn more about 401(k) plans, speak with the knowledgeable and helpful staff at Human Interest. Call us today at 1-855-622-7824.
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