401(k) Recordkeeping

A 401(k) recordkeeper performs the following functions:

• Enrollment

  The recordkeeper tracks who is eligible to participate and enrolls participants as needed.

• Employee Investments

  The recordkeeper records what investments are owned and money earned.

• Contributions

  The recordkeeper logs whether contributions are pre-tax, Roth, employer match, etc.

• Withdrawals

  The recordkeeper records and oversees any hardship withdrawals or loans taken out.

• Statements

  The recordkeeper issues routine account statements to participants in the 401(k) plan.

• Website

  The recordkeeper typically owns the web portal where employees log in to check balances.

• Support

  The recordkeeper handles specific questions employers or employees have about the 401(k).

• Guidance

  The recordkeeper may provide a helpful retirement calculator or general savings advice.

While an investment manager oversees the enormous pool of money, your 401(k) plan recordkeeper sees you as an individual with a very specific stake of the company plan. Sometimes it becomes necessary to know how money got to your account, as different funds are treated differently. For instance, if you leave your job, you can take 100% of your rollover contributions, but you can only keep your employer’s matching contributions if you’re 100% vested.

Here’s what the recordkeeper generally won’t do:

• They don’t design the 401(k) plan from the ground up.
• They don’t offer specific investment advice or help participants meet their financial goals.
• They don’t educate employees on plan benefits or handle new participant onboarding.
• They don’t calculate whether you’re on track to pass IRS nondiscrimination tests.
• They don’t monitor for IRS requirement compliance.
• They don’t sign Form 5500.

A recordkeeper could be:

• Fund companies
• Payroll companies
• Insurance companies
• Third-party administrators

The 401(k) recordkeeping fee could be charged as:

• An asset-based fee,
• A flat fee,
• A per-participant fee, or
• Any combination of the above.

Plan fees based on account balance size or participant enrollment can escalate considerably as the 401(k) grows. The recordkeeping fee can be as little as 0.01 percent to 37 percent of the plan assets annually.

In addition to the recordkeeping charge, 401(k) plan sponsors may also have to shell out for investment management fees, transactional costs on particular investment vehicles or loans, consulting fees, and revenue sharing arrangements. Therefore, it is important to choose a 401(k) recordkeeper like Ubiquity that charges a fair, transparent, FLAT rate – rather than a provider that gets away with charging Assets Under Management and Per-Participant fees.

Sometimes employers pay 401(k) recordkeeping fees. They opt to cover the fees because they want to keep plan investment costs as low as possible for employees. They may also qualify for a tax benefit if the cost of plan administration is a deductible expense. When the employer handles the fee, a check is written monthly, quarterly, or annually out of the employer fund bank account.

Other times, employees indirectly pay recordkeeping fees. Recordkeeping fees are among the most notorious “hidden fees” embedded in 401(k) plans, unbeknownst to plan participants. The fees can be taken directly from participant balances or indirectly through the plan’s mutual fund expense ratio. Employees might notice a periodic and predictable fee coming out of their accounts, or they may see a line-item.

Recordkeepers work quietly in the background, but their role is critical for a healthy and compliant 401(k) plan. Any mistakes made in the maintenance of records can result in delays, penalties, audits, and disqualification of the plan. To limit your risk, you’ll need to evaluate your recordkeeper for peak performance by following these steps:

• Compare fees

  If you’re paying AUM and per-participant fees, you’re paying too much. Request a few customized quotes from competitors that are based on your particular company size and needs. Be sure to get the cost of optional services and one-time transaction fees included in the proposal.

• Verify experience

  Ubiquity manages over $2.5 billion in retirement assets. Generally speaking, any recordkeeper with over $1 billion in assets have proven to have a mature business model that works for a variety of companies. The more experienced a recordkeeper is, the more likely they are to focus on compliance even though it’s not an essential component of their business, and the more likely they are to have the technology necessary to ensure accuracy.

• Choose bundled or unbundled

  Services can be offered as part of a bundle deal or as per-diem. Sometimes a third-party administrator will serve as the recordkeeper and so much more – the fiduciary, the auditor, the compliance officer, etc. A bundled service provider can handle plan management on a broader scale, cutting out an extra middleman. While an unbundled plan can allow more flexibility to lower costs, it can also be more difficult to oversee and may end up costing more once you tally all the services up.

• Consider support

  Since the recordkeeper’s website is the primary way employees review account balances, make changes to their accounts, and initiate transfers, you’ll want a user-friendly interface. Engagement matters in 401(k) participation rates and IRS compliance, so it helps if your recordkeeper offers both a tech-savvy website and a customer service phone line to support employees.

Choosing the right 401(k) plan recordkeeper is an essential part of maintaining a high-quality 401(k) for your small business. Contact Ubiquity to learn more about the top-caliber administrative services we offer for a low, flat fee.