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

When you decide to start a 401(k) retirement plan, the first step is to partner with a plan administrator. A 401(k) plan administrator can assist with the plan set up and management for a certain fee.

Who is a 401(k) Plan Administrator?

A 401(k) plan administrator can be an individual or a party who has the responsibility of setting up and handling all the aspects of the 401(k) retirement benefits program. A person from the company such as the owner or employer, a group of top-level executives, or a third-party can be the plan administrator. Most of the companies partner with a third-party to take up the duties of a plan administrator as there are several aspects involved in plan management.

Duties of a 401(k) Plan Administrator

Some of the key responsibilities and duties of a 401(k) plan administrator are:

Consultation and Set-Up of the Initial Plan

The administrator is responsible for answering any queries relating to fund matching, traditional and Roth 401(k) contributions, participant qualifications and so on.

Conduct Annual Audits and Comply with IRS Tests

All 401(k) plans except the Safe Harbor plan are subject to IRS non-discrimination tests of ACP (Actual Contribution Percentage), ADP (Actual Deferral Percentage), and Top-Heavy tests. The administrator should carry out regular audits and complete all the administrative paperwork associated with IRS non-discrimination tests to ensure that the plan complies with the latest laws.

Correcting Plan Errors

In case the plan fails the annual IRS tests, the administrator has the responsibility of refunding contributions to top executives and increasing the employer contribution to the less compensated employees to ensure that the plan becomes compliant with the non-discrimination requirements.

Submit Form 1099-R and Form 5500

If any distributions are made, the plan administrator needs to submit the Form 1099-R. In addition, the administrator should provide the government with information about program funds, vested interests, compliance interests, and deceased participants (if any) by submitting Form 5500 each year.

Supervise Distributions

The law allows administrators to provide benefits to participating employees in accordance with plan documents. The administrator is required to maintain documents about such payments.

Handle Status Changes and Communicate with Participants

In addition to the above, the plan administrator is also responsible for maintaining the plan paperwork associated with departing employees, new hires, or when a participant increases or decreases their contribution. Lastly, the administrator has a duty of communicating with the participating employees and clarifying any plan-related questions.

How much does a 401(k) Plan Administrator Cost?

The fees to hire a plan administrator vary based on the services that are offered. The plan administrator fees usually include a flat administration fee, plus a per-participant charge, asset management charge, and additional transactional fees that may be involved in loan administration and advisory services.

Finding A Good 401(k) Plan Administrator

If you want to set up a 401(k) plan for your business, it is best to contact a reputed and professional plan administrator. A good administrator will offer personal attention, provide transparency and help you select the most suited 401(k) plan depending on your business goals. In addition, a plan administrator will take up all the administrative tasks while providing you with competitive retirement benefits.