One of the first steps in sponsoring a 401(k) plan is to partner with a 401(k) plan administrator who is legally responsible for setting up and maintaining your employee retirement benefits program.

Some sponsors may also be the plan administrator, but most sponsors outsource the task due to the risk and long list of responsibilities involved. Here you’ll learn who can administrate, what the duties are, how much administration costs, and where to find the right partner.

Who can be a 401(k) plan administrator?

The plan administrator can be:

  • The employer,
  • A company owner,
  • A committee of key executives or board members,
  • Or, most commonly, a third-party partner.

Is a 401(k) plan administrator also a fiduciary?

ERISA requires authorized plan administrators to be specifically named in the plan document as a fiduciary – someone who takes legal responsibility for the retirement plan. Plan administrators must be bonded fiduciaries because they determine eligibility and the amount of benefits payable under the plan, while directly handling funds for loans, investments, and distributions. In rare cases, a Third Party Administrator (TPA) will be involved in the implementation of core decisions and the general bookkeeping, but will opt to relinquish liability, instead  naming the employer the sole fiduciary. These expectations will all be spelled out in the plan document.

Decorative line

What does a 401(k) administrator do?

Plan administrator duties and responsibilities may vary based on the plan agreement, but generally include:

  • Consulting and setting up the initial plan – Plan administrators address many of the questions sponsors have early on, such as: Should you offer both traditional and Roth 401(k) accounts? Who will be eligible to participate? Will you match funds?
  • Performing annual audits and compliance tests – Unless you have opted for a Safe Harbor 401(k), you will likely be subject to the IRS’ Actual Deferral Percentage, Actual Contribution Percentage, and Top-Heavy nondiscrimination testing each year. A Safe Harbor 401(k) administrator will verify that you qualify for exemption from these compliance tests.
  • Correcting plan errors – When a plan fails nondiscrimination testing, the administrator must take steps to bring the plan into compliance with IRS regulations, such as refunding contributions to Highly Compensated Employees, making increased employer contributions to non-HCE employees, or both.
  • Submitting Form 1099-R – Form 1099-R must be filled out and issued to account holders whenever distributions are made. Disability and death benefits are also reported on this form, but Medicare and Social Security taxes go on Form W-2, which the employer fills out.
  • Submitting Form 5500 – A version of this form must be filled out every year, whether the company has many employees, fewer than 100 (Form 5500-SF), or just one person (Form 5500-EZ). The government receives information on vested benefits, compliance data, deceased participants, and plan funds.
  • Monitoring compliance – Laws are always changing, so the administrator must keep a close eye on the legislative environment to be sure the 401(k) plan reflects the most modern version of the laws.
  • Overseeing loans and distributions – The administrator may pay or lend benefits, as allowed by the plan document and by law. If a loan is granted based on hardship, the administrator must have documentation on hand for verification purposes. If a borrower defaults on a loan, it is up to the administrator to take action.
  • Handling status changes – New hires and departing employees require updated paperwork. Employers sometimes wish to increase or decrease contributions. Sometimes companies merge or go bankrupt, necessitating larger changes to the plan, which the administrator can handle in a timely fashion.
  • Communicating with 401(k) participants – Administrators often field employee questions to help them better understand what opportunities exist, how to participate, how vesting periods work, how to maximize retirement savings, and when they can take the money out.

Some responsibilities, such as auditing or providing financial advice, may be outsourced to service providers.

How much do 401(k) plan administrators cost?

Fees for 401(k) plan administration can vary greatly among providers.
Pricing models include:

  • A flat monthly fee for administration
  • A flat monthly fee, plus a per-participant charge
  • Assets Under Management charges based on a percentage of the plan’s total market value
  • AUM fees, plus per-participant charge
  • Extra transactional charges for loan administration or financial advisory services

Ubiquity doesn’t charge AUM or per-participant fees. Instead, we charge one low, transparent monthly fee.

How to find the best 401(k) plan administrator

Naturally, fees are a big factor in choosing the best 401(k) plan administrator – but that’s not all. You want to find a provider who focuses on small business clients such as yourself, so you receive personalized attention and don’t feel like a number.

Ubiquity makes it easy for you to offer competitive retirement benefits while taking care of the administrative tasks like compliance testing, bookkeeping, government reporting, and paying funds out of the account. Contact our expert 401(k) administrators to learn more.