Click here to get this post in PDF
Starting a 401k plan to save up for retirement is one of the best things you can do to ensure a peaceful and joyous post-retirement life. Depending on your monthly or annual income and your personal retirement goals, you can choose from various kinds of 401k plans.
The foremost task in any such plan is contacting a 401k administrator. A 401k administrator is legally bound to set up and maintain the retirement benefits program. While some sponsors may serve as the plan administrator, most sponsors choose to outsource the duty owing to the numerous responsibilities involved in 401k plan administration.
What Does a 401k Plan Administrator Do?
The 401k plan administrator is responsible for ensuring that the 401k plans follow the rules and help everyone with a 401k plan to meet their individual retirement goals. As such, they are responsible for handling the legal documents, monitoring plan operations, and performing accurate analyses.
The laws governing the 401k plans can change, limiting how an individual can use his 401k plan. The uncertain nature of these laws demands the presence of an entity that may closely monitor the 401k plan to protect the interests of all individuals included in the 401k plan.
Who Can Be a 401k Administrator?
A 401k plan may be an individual such as the employer or the company owner. It may also be a committee of board members or company executives. However, in most cases, the 401k plan administrator is a third-party partner who has the legal and fiduciary responsibility of managing the 401k plan.
How Much Does a 401k Plan Administrator Cost?
While some employers might think that they will receive the 401k plan administration for free, the fact remains that 401k plan administration services are never free. The 401k plan administrator may charge a set amount of money upfront or offer an option whereby your assets pay for your plan administration.
There are multiple pricing schemes for 401k administration, including:
- Monthly flat fee
- Monthly flat fee with an additional charge per participant
- AUM (Assets Under Management) charges
- AUM charges with an additional charge per participant
- Additional charges for financial advice or loan administration services
Importance of a 401k Plan Administrator
Aside from assistance in setting up the plan initially, the 401k plan administrator is responsible for tasks such as performing annual audits, compliance tests, and correction of plan errors. The administrator is also responsible for the submission of forms, including Forms 1099-R and 5500. These forms must be filled out and submitted annually.
Aside from the tasks mentioned above, the 401k plan administrator is also responsible for the close monitoring of the laws governing 401k plans and ensuring that the plan complies with the latest version of the laws. The administrator also supervises all loans and distributions and keeps a documented record of all such transactions.
The administrator also handles all changes to the 401k plan, including new hires, departing and deceased employees, etc. The plan also changes according to the status of the company if it goes through a merger or bankruptcy. All such changes are monitored and responded to by the plan administrator, including active communication with the 401k participants using field employees.
Hiring the services of a 401k plan administrator is a wise financial decision that can protect your legal and fiduciary rights. Having a well-reputed 401k plan provider can help you in making this decision the right one for your company.
You may also like: 401(k) Audits: What are They and What to do
Image source: Shutterstock.com