Responsibilities and Duties of a 401k Plan Administrator

401k plans are helpful to secure employees’ financial future but they are not without any hassles or red tapes.

Hiring someone for 401k plan administrator duties can save your business money.

There are a ton of regulations put up by the IRS that the plan has to be in compliance with. Not adhering to these regulations can lead to losing a substantial amount of money through penalties. It is the responsibility of the administrators and sponsors to ensure that the plan follows all regulations without any deviation. Some of these duties can be outsourced to a third-party service provider but there are a few that need to be directly overseen by administrators themselves.

Listed below are a few 401k plan administrator responsibilities.

1) Annual Compliance Testing

retiremenet wrap compliance

One of the most vital responsibilities of a 401k plan administrator is the annual compliance testing. According to the requirement of the IRS, every plan has to undergo non-discrimination tests every year to ensure that employees are treated fairly. These tests help to make sure that highly compensated employees don’t benefit more than other employees when it comes to tax deferrals. If the plan fails in any non-discrimination tests, then the administrator has to take steps to rectify it. This may include refunding highly compensated employee’s contributions along with the tax benefits to decrease the average contribution levels or raising the contribution rates of lower-earning employees. It is well within the right of the administrator to choose any of the above or a mixture of the two as per the situation.

2) Overseeing Loans

If a 401k plan permits employees to take out a loan against their plan, then it is the duty of the administrator to ensure that it meets all of the guidelines required by the IRS. These include making sure that the account has sufficient balance to process the loan and that the future payments will be repaid on time. If a loan defaults, then the administrator has to take action to resolve the issue as well. If the withdrawal qualifies as a hardship, then he/she must prepare and retain the necessary documents for verification purposes.

3) Communication

It’s not necessary for all employees to understand how the 401k plan works and the various regulations it must follow. If an employee has any doubts about the matter, then the administrator has to educate him/her regarding the various aspects of the plan. An administrator can also help the employees understand how future changes could affect the 401k plan so that they can prepare for any consequences that may follow. It is also the responsibility of the administrator to provide an all-inclusive summary report on the plan as well as an annual benefit statement to all the participants.

There are many other fiduciary responsibilities that come with the administrator’s post such as ensuring that all contributions are deposited and recorded, keeping all plan reports up to date, maintaining the plan investment certificates, etc. While it’s always better for a business to handle these tasks internally, some companies hire third-party firms to handle the administrative tasks of a 401k plan. With today’s technological advancements, getting assistance off-site isn’t as risky as it was in the past. Choosing the right firm that has a proven track record of successfully managing 401k plans can provide a lot of benefits to companies when it comes to time and effort saved.

We help companies with retirement wrap plan documents that combine all group insurance policies and contracts that provide welfare benefits into a single plan. These plans help in not only ensuring legal compliance but also provide more clarity to everyone concerned.