Outsource your 401(k) administration
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The Requirements: What You Need to Know Before You DecideIt’s not as simple as deciding to outsource your 401(k), selecting a third-party service, and putting a plan in place. First, it’s important to understand basic requirements that exist to protect the retirement plan and ensure its legal compliance:
- Each plan must have at least one person or entity that controls the administration of the 401(k). The retirement plan activities of these individuals will determine their fiduciary status.
- While most employers hire third-party service providers to help manage these fiduciary duties, employers are still liable for the investment decisions of every person or entity you appoint with fiduciary duty, so you want to make your selection carefully.
The Benefits of Outsourcing 401(k) AdministrationIf you see potential opportunities for outsourcing 401(k) administration, you’re not alone. Businesses of all sizes are choosing to outsource retirement investment plan administration not only because they want to keep Uncle Sam happy, but also because they see the positive returns of cost savings, administrative efficiency, limited liability, and trusted expertise.
- Cost savings: If you bring an expert in-house, you’ll have significant costs to cover their salary, benefits, and maintenance of required investment professional licenses. With an outsourced 401(k), you’re paying for investment-related services but not covering the costs for full-time employment of an investment advisor or team of HR people.
- Administrative efficiency: Managing investment accounts requires not only financial insight; it requires a system for managing the funds, keeping up to date on legal requirements, withdrawing the money each pay period, and a process for employees to access their accounts. Unless your organization specializes in investments, getting an online 401(k) system up and running that can handle this type of data and your payroll in a secure and timely fashion is not worth the time, effort, expense, or headaches it will require. (Human Interest syncs with many popular payroll providers, like Gusto!)
- Reductions in liability: Even though you’re still liable for the decisions made by those with fiduciary duties, outsourcing plan management provides some additional protection, depending on the level of control the outside firm holds with the plan management.
- Trusted expertise: When you select a qualified, informed, and trustworthy financial advisor and 401(k) provider, you’ll benefit from their knowledge and expertise. You’ll definitely want help on fringe cases: employees who may want to take out loans or international employees who want to contribute to their 401(k)s as foreign nationals. As an employer, it’s reassuring to have confidence that the people managing retirement investments for your organization are acting in your best interest and that no conflicts of interest are present.