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Retirement Planning is a Team Sport
Some would say that retirement plan administration is a team sport! Putting together technical and compliance competence with ongoing investment and fiduciary expertise is key to keeping your plan healthy and participants happy. So, what roles and responsibilities should you look to fill for your firm to have a successful and compliant plan?
The first and most important role is you, the Plan Sponsor. Plan Sponsors elect to establish the plan and offer it to their employees. Though many employers act as the named Plan Administrator of the plan, to ensure a successful outcome, they assemble a team of professionals to fulfill the key roles that keep a plan on track. The team’s goal, following the direction of the Plan Sponsor, is to deliver a program that provides retirement security for the plan participants.
Key Team Players
Beyond the sponsorship and ultimate oversight of the plan, the following are key roles which are vital to a well-run plan.
Third Party Administrator (TPA) – Not to be confused with the named Plan Administrator, the TPA plays a critical role in the maintenance of the plan and the coordination of the team. The TPA is typically the “go-to” resource for HR personnel for questions regarding the day-to-day operation of the plan and the coordinator among other service providers in the plan’s ecosystem. More than reliable customer service, TPAs are trained professionals that provide technical expertise to ensure the plan complies with current regulations governing retirement plans. ERISA, DOL regulations, and case law are complex and frequently change. Compliance is daunting, and penalties and back taxes can be significant. So, it is important that a dedicated TPA is engaged. Common duties include:
- Providing guidance on plan design.
- Preparing and maintaining legal plan documents.
- Performing compliance testing.
- Preparing annual valuations and benefit statements.
- Completing and filing all forms with the government.
- Performing non-discrimination testing.
Financial Advisor – An equally important counterpart to the TPA role is the plan’s financial advisor. In tandem with the TPA, advisors help Plan Sponsors decide the goals for the retirement plan. These goals are then translated, with the TPA, into a plan design and ultimately a written plan document that guides the operations of the plan from year to year. The financial advisor also helps the Plan Sponsor select and monitor the investments in the retirement plan. In a 401(k) plan, where participants may direct their account balances, the advisor will assist the Plan Sponsor in selecting a recordkeeping platform and a line-up of investment options from which the plan’s participants will choose. The advisor may also:
- Oversee investment meetings.
- Act as a guide and educator to the plan’s participants through the initial enrollment process and subsequent enrollment meetings.
- Act as a co-fiduciary to the plan.
Recordkeeper/Custodian – The recordkeeping platform in a participant directed 401(k) plan keeps track of the participant’s investment selections and account balances. The plan’s custodian holds the plan’s assets and handles buying and selling of investments for contributions, investment exchanges, and distributions. These services can be provided as a bundle or independently offered.
Other important members of the team:
- Payroll Providers – Payroll providers play a key role in 401(k) plans by recording participant salary deferral percentages and calculating the deductions and appropriate taxes on the contributions to the plan.
- Plan Auditor – For plans over 100 participants, a financial statement audit is performed by a certified public accountant.
- Retirement Plan Fiduciary – Though not a requirement, many advisors have migrated to taking on a fiduciary role in retirement plans by acting in a 3(21) or 3(38) capacity.
- ERISA Attorney – Many Plan Sponsors and TPAs may need the assistance of an ERISA attorney in certain areas of retirement plan administration such as QDROs, voluntary compliance programs, or in the event of a legal action against the plan.
- 3(16) Fiduciary – A Plan Sponsor may hire a firm to fill the role of the Plan Administrator as stated in the plan document.
Bundled vs Unbundled Servicing Options
As with most things in life, there is no perfect answer that fits everyone in every situation. Many of the services mentioned in this article can be linked together and offered in “bundles.” On the surface, this may seem the easier route, but bundled does not give the Plan Sponsor the ability to evaluate each component on its own, so many trade-offs in services and expertise may occur.
An unbundled approach strives to offer the Plan Sponsor a more a la carte approach to the services they use to design their plan. With a good TPA and advisor relationship, the Plan Sponsor can be easily guided through the selection process by relying on the experience of these professionals. Many believe this approach ultimately ends up with the design and structure that works best for their employees. Be aware that, though cheaper fees and overall costs may be offered through bundled providers, it is possible that recordkeeping or compliance costs are being offset in other areas like investment management fees.
Ultimately, the Plan Administrator and Plan Sponsor must ensure that the service providers are fulfilling their duties. By relying on a close relationship with their TPA and Financial Advisor, Plan Sponsors can feel confident that they are creating a plan that will serve the retirement needs of their employees and steer clear of any issues with governing entities.
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