What Is a Retirement Plan Administrator?

LAST REVIEWED Dec 13 2019 9 MIN READ

By The Human Interest Team

Many employers choose to offer their employees retirement accounts in order to attract more qualified employees and improve employee retention rates. The task of researching retirement accounts and choosing the right one, as well as coordinating the collection of funds and payments can be a big project. The plan administrator is a designated individual or team of individuals who are in charge of managing the retirement funds.

What Is a Plan Administrator?

A lot goes into the development of a business’ retirement accounts. Understanding the retirement plan administrator definition can assist you in preparing your employee retirement accounts. A plan administrator acts as the coordinator and is responsible for managing retirement and pension accounts within the organization.

The retirement plan administrator is responsible for the following tasks:

  • Collecting funds

  • Distributing funds to the investor

  • Educating employees on the existence of the pension or retirement plan

  • Providing interested employees with additional resources and answering plan questions to understand their options

  • Enrolling employees in the plan

  • Understanding the goals of the planning committee

  • Coordinating payments to employees

  • Coordinating payments to spouses

Depending on the size of the organization, these tasks can be timely and complex, especially if there are multiple funds to manage. For this reason, many business owners may choose to create a planning committee or outsource the planning tasks.

Who Is the Plan Administrator?

There are no requirements as to who can act as the plan administrator for an organization. The plan administrator could be the business owner, an individual employee hired solely for the role, or even a committee that is created to complete the tasks. It could also be outsourced to a professional.

However, a lot of thought and consideration should go into deciding who the plan administrator will be. Plan administrators have an important role in the organization. Although not illegal, many agree that the plan administrator should not be the business owner themselves. When a business owner acts as the plan administrator, it could be considered a conflict of interest and the Board of Directors could be held liable for any wrongdoings.

Many would also agree that the best option is to use a designated committee that is created with the intention of completing retirement plan responsibilities. But, even if the business owner is not a part of the administrator committee, they are expected to monitor the actions of the committee to ensure that the employees’ are being represented properly.

Who Serves on the Retirement Plan Administrator Committee?

In most cases, a third-party company will act as the administrator committee. It is also possible for employees to serve on the committee. Employees who choose to serve on the administrator committee also need to be careful to protect their own interests. If you’re asked to serve on the committee, it can be useful to request that you are protected from any financial liabilities.

Regardless of who serves on the committee, the committee owes a fiduciary duty to the employees of the company in which they represent. Every committee member must act in the best interests of the employees and their contributed funds. Plan administrators do not make investment decisions, but instead, are responsible for coordinating the account funds and following the guidelines of the committee.

Businesses with fewer employees may not have as many people interested in enrolling in the retirement plan, so a larger planning committee may not be needed. Until the number of interested employees increases, the business may choose to use employees to serve on the committee. Once there is more interest in contributing to the retirement account, the tasks may become more time consuming and it might make sense to outsource the responsibilities of the committee.

What Does Fiduciary Duty Mean?

Committee members, regardless of whether they are an employee or a professional planner, owe a fiduciary duty to all beneficiaries in the plan. Fiduciary responsibility means that the committee member is ethically and legally responsible for acting in a way that protects the interests of the investor. Just a few of the fiduciary duties of a committee member include the following:

  • Recordkeeping in a confidential and accurate manner

  • Safety techniques are implemented in order to reduce risk

  • Always acting in a way that exclusively benefits the plan’s beneficiaries and no one else

  • Committee members will not overpay for funds, based on the fair market value

  • A fair return is expected on all investments

Individuals who agree to serve on a committee must agree to these requirements.

How to Reduce Your Fiduciary Liability With an Organization

Employers are also considered to be fiduciary liable. Because the stock market can be unpredictable, it makes sense for the business owner or committee members to not want to be fiduciary liable. Fortunately, there are two methods in which you can reduce your fiduciary liability.

  • Hire a professional committee: When hiring a professional committee or plan administrator to manage your retirement accounts, you are outsourcing all of the account’s financial decisions. While the business owner is still expected to do their research and choose a plan administrator that they trust to maintain fiduciary duty, they are protected from financial liabilities.

  • Hand over control to your employees: Some employers may choose to hand over control and fiduciary responsibility of the account to their employees. In this case, the employees choose their own investments and maintain fiduciary duty.

In each method, the business owner is able to reduce their fiduciary liability.

Benefits of Hiring a Professional Plan Administrator

Once you determine it is time to hire a professional plan administrator, you can take advantage of the following benefits they can offer:

  • Legal knowledge: Good understanding of the legalities and regulations involving work-sponsored retirement accounts can help you avoid penalties.

  • Knowledgeable resources: Professional plan administrators have knowledgeable resources and connections that can assist with the management of your account. Your professional plan administrator can outsource the investing elements to a professional. They might also utilize additional professionals like insurance or trust providers, accountants, or fund custodians.

Professional plan administrators can also reduce the amount of time you have to spend on managing employee retirement accounts.

The plan administrator is responsible for coordinating and managing the retirement or pension accounts within an organization. Business owners can outsource these tasks to an employee, group of employees, or a professional. Choose a professional that is familiar with the most common retirement accounts and their individual eligibility requirements to act as your plan’s retirement administrator.

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers.

Subscribe to our Retirement Roadmap newsletter

Retirement isn’t just a destination. It’s a journey, and we’re here to help you. Our newsletter delivers succinct and timely tips, reviewed by Financial Advisors, to help you navigate the path to financial independence.

By providing your email above or subscribing to our newsletter, you agree to our Privacy Policy. You also elect to receive communications from Human Interest.