Despite the clear benefits of a 401(k) plan (i.e., top-tier recruitment and tax savings), some business owners think retirement plans are too expensive, too risky, or too difficult to administrate. However, you can reap the rewards of a 401(k) plan if you make sure you have the right team in place.
There are multiple parties required for successful 401(k) plan selection, maintenance, and compliance -- the financial advisor, the third-party administrator (TPA), the record keeper, and the 401(k) auditor. With these players quarterbacking your plan, managing your 401(k) can be a seamless experience that delivers for your employees year-over-year.
Let’s meet the team.
Good 401(k) plan advisors have experience and training to help employers make informed decisions. Financial advisors help design the plan, assist with compliance and facilitate communications with employees. More specifically, financial advisors:
While a financial advisor’s primary responsibility is asset management, they can also assume additional responsibilities that involve the administration of the 401(k) plan (i.e. the third party administrator).
Many plan sponsors (that’s you!) will outsource the retirement plan’s daily management to a TPA. TPAs can be a company or individual who, as a named fiduciary, sits between the recordkeeper and the plan sponsor. Charged with maintaining the financial wellness of the 401(k) plan and protecting the interests of plan participants, TPAs:
Although the TPA is your expert consultant who ensures your retirement plan remains qualified in the eyes of the law, it does not mean you’re absolved of all responsibility. That’s why it’s crucial to select a TPA who will guide you in choosing the right teammates, recommend plan products aligned with your goals, and take the time to understand the intricacies of your 401(k) plan so you can scale as you grow
Record Keeper
Ascensus, Fidelity, ADP, TransAmerica, and Voya are Recordkeepers with a national presence, but each has its own strengths and weaknesses that your TPA can help you evaluate. There are also a host of regional recordkeepers that might be a good fit for your business. No matter the type, recordkeepers track how much money is in the plan, and perform all of the accounting functions including recording participant deposits, asset allocations, and funds allocations.
It is important to note that recordkeepers only track the money and provide the records of plan transactions. Although recordkeepers may provide tools to help your employees manage their accounts or educate plan participants about enrollment, they do not offer financial advice. They are also not responsible for compliance, which is a critical part of maintaining a qualified retirement plan.
Whether you are relying on a TPA or managing the plan internally, perform your research before selecting a recordkeeper.
Each year, plan sponsors must perform a 401(k) audit as required by law for all employers with over 100 employees. (You can read more about requirements here.) As mentioned above, plan administration is complex, and compliance is an integral part of ensuring your retirement plan stays qualified. That’s why you should employ an experienced 401(k) CPA to perform the audit and file Form 5500 with the IRS and DOL. To maintain the plan’s integrity and ensure the review’s impartiality, the TPA or the recordkeeper cannot perform this function. The 401(k) auditor will:
When selecting a CPA, look for one that specializes in this unique space. You can easily tell if they specialize if they perform at least one hundred audits per year. If you already have a CPA, but this is not their specialty, keep them for everything else but find a 401(k) auditor that can perform this task once per year. Failure to perform the audit correctly or to catch mistakes can result in five-figure penalties, which you can avoid by choosing an expert.
Traditionally, the audit has been a time-consuming, expensive task, taking up to a week of your human resources time and space in your offices. Auditors have moved to remote formats with the pandemic, but the manual labor required is still arduous. Look for a firm that leverages technology to free your staff from answering questions that can be extracted with modern tools. That results in faster, more accurate audits, but don’t select a provider that relies on tech alone. The human factor is an essential element in catching the nuances that are a part of every plan. Ask your TPA for a recommendation.
With your team working together, you can deliver a successful plan that removes much of the administrative burden that may have prevented you from starting or growing your 401(k) plan.