Do you know who the fiduciaries are on your 401(k) plan and what they’re responsible for? If you’re a business owner sponsoring a company retirement plan, the answer to this question had better be yes. That’s also true if you’re a financial advisor overseeing 401(k) plans for your business-owning clients.
That’s because you’re liable for ensuring that all aspects of the plan are administered appropriately.
At FiduciaryShield, that’s all we do, so here’s a look at three types of primary service providers that you might have on your plan, and the role each should be expected to play:
The trend in recent years has been for 401(k) recordkeepers to state unequivocally that they are not taking fiduciary liability on retirement plans.
Most recordkeepers keep themselves out of trouble by clearly noting the difference between giving fiduciary advice and providing non-fiduciary education. The problem plan providers face is that in addition to providing education, recordkeepers also process plan transactions like fee payments, fund transfers, contributions, and distributions.
Poor recordkeeping can result in problems with these transactions, which can negatively impact the plan. As a financial advisor overseeing 401(k) plans or a plan sponsor, it’s your fiduciary responsibility to ensure that the recordkeeper is doing its job correctly. In fact, if it’s proven that you turned a blind eye to obvious problems with performance, you can be held legally liable.
Although you won’t always be able to track errors happening internally with the recordkeeper, you can monitor performance by paying attention to how money moves in and out of the plan. The standard is for new contributions to post to the plan within three days of submission and distributions or rollovers to process within two weeks of the request. If this isn’t happening, it’s a clear red flag that the recordkeeper isn’t living up to their responsibilities, leaving you liable. You need to seriously consider making a change.
Third-Party Administrators (TPAs)
There are many services a recordkeeper doesn’t provide, making it useful to hire a third-party administrator (TPA). Your TPA is primarily responsible for maintaining your plan document, preparing your IRS Form 5500, calculating your match and profit-sharing contributions, and completing your non-discrimination testing.
Your TPA may offer to act as a plan fiduciary, but this creates an inherent conflict of interest. One of the primary duties of a plan fiduciary is to supervise service providers and make a change if the service isn’t up to par. By these standards, in certain situations, the TPA would have to be objective enough to fire themselves.
The administrative fiduciary is unlike other service providers because they are fiduciaries to the plans they administer.
This is what we do at FiduciaryShield.
Our services lift the yoke off a plan sponsor or financial advisor’s neck because we take on most of the administrative responsibilities that a well-run plan requires. In a regulatory and compliance sense, we dot every “i” and cross every “t.”
We know exactly what each plan requires for design, creation, administration and compliance. And our experts know the importance of meeting those requirements to protect not only you but also ourselves as fiduciaries. Because while pride in our professionalism and doing a great job for our clients are a powerful motivation, being fiduciaries to the plan and all the liability it entails means we have skin in the game.
As an administrative fiduciary, our services include monitoring the performance of other service providers and recommending changes as necessary. As an impartial third party, your administrative fiduciary remains objective and focuses only on the best interests of your plan.
Your administrative fiduciary will also help you evaluate multiple plan providers to ensure you’ve chosen the one that offers the best services for the fee charged. This should be done on a regular basis so you don’t run into any liability issues. You can also minimize liability by documenting your selection and monitoring process and keeping good records of the services each provider has promised to deliver and the fees you’ve agreed to pay.
A great Administrative Fiduciary will also work with the TPA to make sure the necessary information is completed and processed correctly. This frees up your time to focus on other things.
So as you can see, you as a financial advisor overseeing a client’s retirement plan or a business owner administering a plan for your company, there’s a lot to consider when it comes to hiring help for your plan.
Let us help. Many business owners find that they simply don’t have the time or the knowledge necessary to properly monitor their company retirement plan and all of the service providers they’re working with. Hiring an administrative fiduciary like FiduciaryShield will take this burden off your shoulders so you can focus on doing the things you do best.
Contact us today to learn more about how we can help you deliver the better 401(k).