So you’ve been assigned the task of researching retirement plan options for your company. There’s a lot to consider when figuring out the right plan for your specific group of employees so let’s start with the basics. One of the first things you should know when researching retirement plan providers is “Who are the players and who should I be interviewing for our evaluation?”.
There are three basic providers who can be servicing your plan: the Third-Party Administrator, the Recordkeeper, and the Financial Professional. We’ll start with the first two today.
The Third-Party Administrator (commonly referred to as the TPA) is responsible for the compliance and regulatory work associated with the 401(k). Their first job is to draft your Plan Document. The Plan Document outlines all of the provisions and rules of the 401(k) such as eligibility requirements, matching schedules, vesting schedules, participant loan criteria, etc. Since the government allows certain tax advantages associated with these plans, one of the requirements is that you must have a Plan Document in place. Without a Plan Document, there is no plan. Another job of the TPA is to perform your compliance testing each year. Compliance testing is put in place to make sure that the Business Owners and Key Employees aren’t benefiting from the plan disproportionately from the other employees. Next, the TPA is tasked with preparing the annual filing associated with the plan known as the Form 5500. Finally, the TPA also prepares the annual plan valuation, quarterly participant statements, and generally offers access to a service or help center for participants.
The Recordkeeper of the plan is responsible for the movement of money into, out of, and within the plan. The Recordkeeper accepts the contributions into the plan each pay period, divides the assets into each participant’s account, tracks the source type, and executes the trades as the participants have instructed them. Likewise, the Recordkeeper is responsible for administering rollovers into and out of the plan, participant loans, and distributions. The Recordkeeper is also tasked with supporting the Participant and Plan Sponsor Website in order to access the participants’ account information.
One of the decisions you’ll have to make is whether you would like to have a “bundled” or “unbundled” retirement plan. A bundled retirement plan is when the TPA and Recordkeeping services are performed by the same provider. Not surprisingly, an unbundled retirement plan is when the TPA and Recordkeeping services are performed by two different providers. I generally suggest a bundled program so you don’t get caught in the middle of two different vendors and not know who to contact for what question.
Since the Financial Professionals you consider for the retirement plan may require some deeper consideration, we’re dedicating the next entry to the different financial professionals available to support your plan…