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 because you’re ultimately liable for ensuring that all aspects of your plan are administered appropriately.
Here’s a look at three 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 plan sponsor, it’s your fiduciary responsibility to ensure that your 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 record keeper, 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 you need to seriously consider making a change.
Third-Party Administrators (TPAs)
There are many services a recordkeeper don’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.
Unlike other service providers, an administrative fiduciary is a named fiduciary on the plan. 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.
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 helps 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 a better 401(k).