How do I Choose a 401(k) Plan Administrator?
The first step in sponsoring a 401(k) plan is partnering with a plan administrator. Such an administrator can set-up the plan and manage it for a certain fee.
What is a 401(k) Plan Administrator?
According to the experts on 401(k) plans at Ubiquity, an individual or a party responsible for setting up and handling all aspects of the retirement benefits program is the 401(k) plan administrator. The plan administrator can be anyone from a company owner or employer, to a committee of top-level executives, or a third-party partner. In most cases, companies choose to employ a third-party partner as there are many responsibilities involved in maintaining a retirement plan.
What are the Duties of a 401(k) Plan Administrator?
The duties and responsibilities of a 401(k) Plan Administrator depend on the plan agreement; and usually include:
Consulting and Setting Up the Initial Plan: This involves answering any queries from the sponsor regarding participant qualifications, offering traditional or Roth 401(k), matching funds, etc.
Performing Annual Audits and Compliance Tests: Except for a Safe Harbor plan, all other 401(k) plans are usually subject to IRS non-discrimination tests of Actual Contribution Percentage, Actual Deferral Percentage, and Top Heavy tests. A plan administrator is responsible to conduct audits, perform the administrative tasks related to non-discrimination testing and ensure that the plan is in compliance with the latest laws.
Correct Plan Errors: If the plan fails any of the annual compliance tests, the administrator is responsible to bring the plan into compliance with IRS requirements by refunding contributions to top-level executives and making a higher employer contribution to the employees who are not highly compensated.
Submit Form 1099-R and 5500: The plan administrator is also responsible to submit form 1099-R whenever any distributions are made. Additionally, the administrator must submit the 5500 form each year that informed the government about the plan funds, compliance information, vested benefits, and deceased participants if any.
Supervise Loans and Distributions: According to the law, administrators are eligible to lend benefits based on plan documents and are responsible for maintaining documents regarding any such payments.
Handle Status Changes and Communicate with Plan Participants: Lastly, the administrator has a duty of maintaining the paperwork for the 401(k) plans of new hires, departing employees, or those that intend to increase or decrease their contribution. The administrator should also communicate with the participants and clarify any questions about the plan.
How much does a 401(k) Plan Administrator Cost?
A plan administrator’s fees vary depending on the responsibilities and services offered. In general, the administrator costs include a flat monthly fee, plus per-participant charge, AUM or Assets Under Management charges depending on the plan’s market value and any additional transactional charges related to financial advisory services or loan administration.
Finding A Good 401(k) Plan Administrator
If you want to start a 401(k) retirement plan for your business it is important to hire a professional and knowledgeable plan administrator who can provide personal attention and help you choose a 401(k) plan based on your business goals. A good 401(k) plan provider will undertake all the administrative tasks and help you make the best decisions for your company by offering competitive retirement benefits.