What to Look for in a 401(k) Plan Administrator

If you want to sponsor a 401(k) plan for your business, the first step involves choosing a plan administrator. A plan administrator can help you in setting up your retirement plan and assist in handling the plan for a fixed fee.

What is a 401(k) Plan Administrator?

A party or an individual who fulfills the role of setting up and managing a 401(k) retirement benefit program is the plan administrator. A company owner, a committee of top-level management, or a 3rd party partner can be a plan administrator. Most companies opt for a 3rd party partner to handle their 401(k) plans since there are various aspects involved in maintaining a 401(k) plan. 

Duties of a 401(k) Plan Administrator

According to provider Ubiquity, the responsibilities of a 401(k) plan administrator vary depending on the plan agreement and generally include: 

Consult and Set Up the Initial Plan: The administrator has the duty of clarifying all the queries related to participant qualifications, matching funds, traditional or Roth contributions, and so on.

Perform Annual Audits and Compliance Tests: All 401(k) plans except a Safe Harbor plan, need to comply with the annual IRS non-discrimination tests of Actual Deferral Percentage, Actual Contribution Percentage, and Top Heavy tests. It is the duty of the administrator to ensure that the plan is compliant with the law and perform audits and complete any administrative tasks associated with IRS testing. 

Correct Plan Errors: In case the plan fails the IRS tests, the administrator is required to modify the plan so that it complies with the IRS requirements by increasing the employer contribution to the less highly compensated employees and updating employer contributions to top-level management. 

Submit Form 1099-R and 5500: The plan administrator also has the responsibility of submitting form 1099-R when distributions are made. Besides, the administrator should also submit form 5500 to the government annually informing them about the plan funds, vested benefits, deceased participants, and compliance information. 

Supervise Loans and Distributions: As per the law, an administrator is eligible to lend money according to the plan documents and is responsible to maintain all the documents related to any such payment. 

Handle Status Changes and Communicate with Participants: In addition, the administrator should maintain the 401(k) plan paperwork of departing employees, new hires, or employees who have modified their contribution. 

How Much Does A 401(K) Plan Administrator Cost?

Depending on the services offered and the plan responsibilities, the administrator’s fees may vary. The administrator charges usually include a flat monthly fee in addition to a per-participant charge, asset management, or AUM fees based on the plan’s value. The cost may also include any additional charges associated with loan administration and financial advisory services. 

How Can You Find A Good 401(K) Plan Administrator?

It is important to have a knowledgeable plan administrator for your 401(k) retirement plan. A professional administrator will provide personal attention and help you in selecting the most suitable plan depending on your business goals. In addition, a good plan provider will handle the administrative tasks and support you to make the best decisions for your business by providing competitive retirement benefits.