The 401(k) recordkeeper's job is to track who’s in your retirement plan, what investments they own, and what money is going in or out.
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There comes a time when you may wonder who is sailing the ship that overseas your retirement savings.
You may be getting closer to leaving the workforce, or you may have questions as you’re just starting out. Maybe you need to take a loan out of your 401(k), you’d like to auto-enroll, you wonder what investment choices your plan is limited to, or you want to know how much you’re paying in fees.
It’s always a good idea to know who your 401(k) plan administrator is, what this role’s primary functions are, and to re-evaluate performance on an annual basis.
Asking Human Resources is typically the most straightforward way to find your 401(k) administrator and figure out who manages your retirement savings account’s day-to-day activities.
The employer is almost always the plan sponsor. Typically, the sponsor hires a third-party administrator to oversee the accounts. Sometimes an individual, internal board, or appointed group of trustees will serve as the plan administrator. From a risk management standpoint, the employer should not double as both sponsor and administrator.
If you have a Summary Plan Description handy, you can easily check who signed the return as the Plan Administrator. At the Department of Labor’s website, you may also search, request, or download a copy of Form 5500.
The question of “What is a 401(k) plan administrator” becomes significant when:
A 401(k) plan administrator has some discretion in these matters, though the entity must abide by the plan document drawn up with the input of the plan sponsor.
Along with the operational responsibilities comes fiduciary liability, meaning these individuals can be sued if investments are tanking or exorbitant fees are significantly eroding profits.
The 401(k) plan administrator duties are many, but can be broken down into two main functions – ongoing administration work and annual compliance work. The plan must remain in legal compliance with the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Service (IRS).
Here are some of the main duties of a 401(k) administrator:
The administrator will have the sponsor fill out several forms and draw up legal documents spelling out how the plan will run. Some employers may opt for a Safe Harbor or SIMPLE 401(k) plan that has somewhat easier administration by design. After that, the SIMPLE 401(k) or Safe Harbor 401(k) administrator will ensure that the plan is followed in accordance with the Plan Documents.
Deposits must be made every time payroll is run, with the company match applied as soon as possible. If an auditor discovers a late deposit, employers may need to file Form 5330, pay an excise tax to the IRS, and compensate employees for lost earnings.
All new hires must be assessed for eligibility in the 401(k) plan. When individuals are eligible to participate, they must be notified before enrollment takes effect. Failure to enroll participants on-time can result in the employer having to make a corrective contribution equal to 50% of their missed deferral opportunity.
Administrators track and update employee deferral rates. Changes can be made at any time, but failing to update the deferral percentage in payroll could result in too much coming out of an employee’s check – meaning a payroll reversal and refund, not to mention documentation of the correction. When too little is deferred, a corrective contribution will need to compensate the employee for what they would’ve set aside, as well as the company match – which can be a rather costly oversight.
Documentation and approval are necessary any time an employee withdraws money from the plan, whether through a regular distribution, early distribution (with the appropriate penalty), hardship withdrawal, rollover between plans, or qualified domestic relations order to satisfy divorce or child support settlements. To avoid delays (and employee complaints to the Department of Labor), it’s important to have seamless data between payroll and the plan administrator.
The administrator makes sure 401(k) loans are reviewed and documented prior to approval, and that the loan repayments are set up within payroll to avoid default. Repayment withholdings will need to be terminated appropriately to avoid overpayment and payroll reversal refunds. Failure to initiate a timely repayment in payroll or an employee actually defaulting can result in the employer having to make a full loan repayment on the employee’s behalf. For this reason, many employers don’t allow 401(k) loans.
Large plan audits are required for all 401(k) plans with more than 100 participants. Auditors will look for red flags while pulling reports, assessing documents, and speaking with IRS auditors. While this may seem like a lot of work (and expense), it is necessary to avoid even costlier corrections and financial penalties.
Administrators must facilitate the transfer of assets after employees leave the company. If the balance is under $5,000, the assets may remain in the plan. Larger balances must be rolled over to a new plan or paid in a lump-sum distribution. Improper processing could lead to delays and DOL complaints.
While the plan administrator typically does not manage investments directly, an administrator acting with fiduciary responsibility will keep tabs on the financial decisions made by the broker and offer up tax advice to ensure employers and employees get the most out of their benefits.
Employee notices may be required when any detail of the plan changes. Failing to send these required notices on-time can result in $100/day penalties or full plan disqualification, so keeping up with this basic administrative task is essential.
Forms are required to remain in compliance with IRS and DOL regulations. Every participant who received a distribution this year will need Form 1099-R. Form 5500 – perhaps the single-most important piece of annually filed plan documentation — is a detailed overview of the plan due seven months after the plan end date. The census data spells out all the information used in the nondiscrimination testing, which is particularly important.
Any mistakes made throughout the year can often be detected during these end-of-year processes. At this time, corrections can be made proactively before the government gets involved. Performing these tasks early is necessary to avoid penalties for late nondiscrimination testing. Inaccuracies in these documents can trigger an IRS audit, which is a huge hassle for all parties.
Most plans must prove that regular employees benefit from the 401(k) plan – not just CEOs, board members, or highly-paid executives. Failing the test will require corrective distributions, contributions, or both to restore balance to the plan. It can be an expensive, huge hassle, so proactive monitoring throughout the year is best.
There is often confusion as to the different roles involved in a 401(k) plan. Typically, a plan is overseen by:
Sometimes an administrator offers brokerage service as well, or the plan sponsor chooses to handle the administration, though it is most common to delineate the various roles to separate entities due to the complexities of 401(k) management.
You might have money you don’t even know about coming to you out of an old 401(k) plan. You can look at old tax W2s filed with the IRS and check Box 12 to see if you made any contributions. You can also contact a former employer with your name, social security number, and dates of employment to see if they have the records you need.
Mergers, relocations, changes in providers, and bankruptcies can complicate matters, but a prior Form 5500 can help you locate the firm. The National Registry might list your name as a missing participant, helping you connect with a forgotten employee retirement account, or you may check the Department of Labor’s Abandoned Plan Database.
Ubiquity is a small business 401(k) plan administrator who can help with all these duties. Contact us for details.