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What does a 401(k) plan administrator do?

What does a 401(k) plan administrator do?

Nicolle Willson, J.D., CFP®, C(k)P®

For many employees, participating in a 401(k) is straightforward. But to make things look easy, there’s a lot that goes on under the hood, from day-to-day administration to compliance requirements.

That’s where 401(k) administrators come in. Tasked with handling all aspects of plan administration, an administrator may either be an internal member of the company or a third party.

Administrators and fiduciaries

First, some terminology. A 401(k) administrator is tasked with managing an employer’s retirement plan. Given the long list of responsibilities and liability risks, this duty is often outsourced to a third party administrator (TPA).

Chances are that you’ve also heard the term “fiduciary.” Generally speaking, fiduciaries are individuals or entities entrusted with handling funds or other assets belonging to another party. When it comes to retirement plans, there are a few different kinds of fiduciaries, but we’ll concentrate on administrative fiduciaries here.

An ERISA 3(16) fiduciary are responsible and liable for the day-to-day management of your plan. As we’ll later cover, this includes processing 401(k) loans and distributions, handling employee notices, and more. Not all TPAs are necessarily 3(16) fiduciaries, and many will perform administrative functions but will leave the liability in the hands of the employer.

On a side note,  another common 401(k) fiduciary is an ERISA 3(38) fiduciary, also known as the investment manager. The investment manager takes on even more responsibility and liability by making investment decisions on the sponsor’s behalf, in the best interest of plan participants. Investment management is not part of plan administration, and plan sponsors may hire an external investment manager, in addition to their plan administrator. Alternatively, some bundled 401(k) plan providers will serve as both the 3(16) and 3(38) fiduciary. At Guideline, we serve as both the 3(16) and 3(38) fiduciary for eligible plans.

For more information about fiduciaries, you can read our separate article here.

Plan administrator responsibilities

Plan administrators manage a company’s 401(k) plans behind the scenes. From the onset, the administrator is there to help your company structure its offerings. Will you offer both traditional and Roth 401(k) accounts? Who’s eligible to participate? Depending on their level of involvement, an administrator may also advise you on plan design to ensure your 401(k) is both competitive and compliant. This can mean working with your company to design your profit sharing and/or employee matching program as well.

The following is a list of administrator responsibilities, but responsibilities may vary from administrator to administrator, and according to your service agreement:

  • Consultation on initial plan design
  • Preparation of Summary Plan Description for participants and beneficiaries
  • Approval of transactions (loans, distributions, etc.)
  • Monitoring compliance with plan rules and federal regulations
  • Discrimination testing and audit support
  • Compliance filing (Form 5500, Safe Harbor notices, Form 1099-R)
  • Generation of annual participant census
  • Day-to-day employee communication

Once your company’s 401(k) plan is set up, there’s a lot that goes into maintaining it. That includes monitoring employee contributions and distributions (or withdrawals) to ensure they’re in compliance with both the plan’s rules and federal regulations. Administrators also handle employee “status” changes. In other words, as employees gain or lose eligibility (e.g., join or depart the company), the administrator works to ensure those changes are reflected accurately.

Finally, while offering a 401(k) is a great way to set your business apart in a competitive talent market, doing so comes with a slew of reporting and recordkeeping requirements. And no surprise, administrators are tasked with ensuring all the boxes are checked. From performing nondiscrimination tests to preparing your Form 5500 and safe harbor notices, administrators need to ensure your plans are compliant with federal and state regulations. As rules change, they’ll need to update your plans accordingly as well.

Fees and pricing

Making retirement “work” for any business, large or small, is a big job. So if you’re partnering with a third party, how much does that relationship cost?

While no two administrators’ approaches are exactly alike, most charge one fee to employers for plan administration and one fee to plan participants. At Guideline, we offer three pricing options with a transparent and predictable structure: a base fee with an additional per-participant fee, all charged monthly to employers.

For participants, we charge a 0.08% account fee based on assets under management (AUM). This fee is intended in part to offset transaction fees, which means we don’t charge disbursement fees, loan fees, rollover fees, plan termination fees, and much more.

401(k) providers charge a variety of asset-based fees and transaction fees. These seemingly low fees can have a major impact on your savings, especially when compounded over time. As an example, if your plan currently has $100,000 in it, a 1% AUM fee would result in an additional $1,000 due each year.

Making matters worse, these costs aren’t always apparent—they may be bucketed under other administrative expenses or line items in your invoice.

Investing in employees’ retirement shouldn’t be an aspiration exclusive to larger companies. While offering and administering a 401(k) plan may seem daunting, you don’t have to go it alone. Guideline makes it easy for your small business to offer competitive retirement benefits without the heavy lifting.

We handle plan administration for you, including compliance testing, recordkeeping, and reporting. That means less time worrying about filing a Form 5500 and more time focusing on your business. To see how Guideline makes it easier to give your employees the retirement plans they deserve, schedule a demo with one of our 401(k) experts.


The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax advice that considers all relevant facts and circumstances. You are advised to consult a qualified tax professional before relying on the information provided herein.