Joné E. Liuzza, ERPA, QPA, QKA Director of TPA Services
If you sponsor a 401(k) plan, you are likely working with great partners. You probably work with an advisor who maintains the investment lineup. You are also probably working with a Third Party Administrator (TPA) who handles the daily administration and annual compliance of the plan. But no matter how qualified your partners may be, you too have responsibilities as a plan sponsor.
First things first: What is a plan sponsor? It is typically the employer of an organization that maintains the retirement plan. The plan sponsor plays a significant role in the administration of a retirement plan and carries out essential responsibilities that have a direct impact on the overall health of the plan.
Here are three things you should be doing as a plan sponsor:
Act as a Fiduciary
It is important to note that as a plan sponsor, you are automatically considered a fiduciary. One key responsibility as a fiduciary is to operate the plan with the sole interest of participants and beneficiaries in mind. According to the Department of Labor, “Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest. In other words, they may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers or the plan sponsor.” Other major responsibilities of a plan fiduciary include monitoring contributions, paying reasonable plan expenses and educating plan participants on investment options within the plan.
Be a Plan Expert
Know your plan provisions and know them well. What is your eligibility period? How often is open enrollment? Do you have automatic escalation? If you have questions regarding your plan document, ask your TPA to review the plan provisions with you so you have a clear understanding of how the plan should be operated. It is important for a plan sponsor to know which employees are eligible to participate in the plan and which are not. Working closely with your designated person(s) who may be assisting in day-to-day plan functions would be beneficial because some administrative tasks carry a fiduciary responsibility (contributions, distributions, loans). We sometimes see plan errors when there has been a staff change, so it would behoove you to be able to step in when necessary.
Understand the Roles and Responsibilities of Your Trusted Partners
Have open lines of communication with your plan service providers. A clear understanding of roles and responsibilities will result in a successful, well-operated retirement plan. Ask yourself these questions:
- Where does your job end and the TPA’s pick up?
- Whom can participants call if they have a question?
- Who is overseeing the census data collection?
- Is there a check and balance process in place for loans?
- Who is distributing annual participant notices?
- Who is reviewing and signing the Form 5500?
It sounds overwhelming, but it doesn’t have to be. 401(k) plans are an excellent tax tool for an organization as well as a benefit for attracting and retaining good employees. Like all lines of business, you want to partner with the best. Your advisor and TPA should be able to offer guidance every step of the way. Here are 10 tips for plan sponsors to get your 401(k) plan ready for year-end.
Do you currently work with a TPA? Do you know if a 401(k) plan is the right answer for your organization? Call ACG today to find out which plan design is right for you.