Who Is My 401(k) Plan Administrator?

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:

• Your eligibility to participate in the company 401(k) plan is in question.
• The amount of benefits payable under the plan is in question.
• Your claim for benefits is approved or denied.

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:

Setting up the 401(k) plan type and formally documenting the rules.

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.

Depositing employer contributions and funds into the plan bank account on-time to avoid excise tax.

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.

Executing or overseeing daily activities, including determining eligibility and handling enrollments.

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.

Updating deferral rates in accordance with plan participant wishes.

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.

Approving rollovers and reviewing, approving, and paying out distributions to eligible plan participants.

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.

Reviewing, approving, and documenting loan requests and setting up repayment withholdings in payroll.

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.

Maintaining the plan records for tax time and overseeing annual plan audits, looking for red flags.

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.

Processing terminated employees by transferring balances to a new plan or paying a lump sum.

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.

Monitoring overall plan investment and tax savings strategy.

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.

Sending out mandatory account notices to plan participants.

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.

Preparing Form 1099-R, Form 5500, and the annual year-end census.

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.

Performing end-of-year compliance testing and fixing failures with contributions or distributions.

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:

• A Plan Sponsor – This is usually the corporate employer, a CEO, or a small business owner. The sponsor decides what terms and conditions will apply to the plan, how it is structured, who is eligible, which investments will be allowed, and which partners will be involved.
• A Plan Administrator – The administrator sets up the plan, ensures that all eligible employees have access to it and adequate education, handles loans and distributions, and checks that the plan remains in compliance with the law.
• A Plan Broker – The broker handles the specific investment transactions, governs the choice of funds, pays the fees, balances the portfolio, executes the wishes of the sponsor or participants, and offers specific investment advice (often for an additional fee.)

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.