Under the rules that govern 401(k) plans, plan sponsors must have a plan administrator to oversee day-to-day operations. Some larger companies will hire a professional 401(k) administrator or even a whole team to handle the work. Others will rely on third-party administrators (TPAs) or contract with a 401(k) management service.
For very small businesses and self-employed people, the plan sponsor and administrator may be the same person. If you would like to become a 401(k) administrator, or if you need to hire one, here is what you need to know.
- The rules that govern 401(k) plans require that each plan have an administrator.
- A 401(k) administrator manages the plan on a day-to-day basis and ensures that it adheres to the law.
- Plan administrators are fiduciaries, responsible for managing their plans in the best interests of participants.
- Some small companies administer 401(k) plans themselves, but many outsource many of those tasks.
- You do not need an “official” certification to be a 401(k) plan administrator.
The Role of a 401(k) Administrator
The Employee Retirement Income Security Act (ERISA), the primary federal law that governs 401(k)s, requires that plan documents designate an administrator. It also lays out that person’s duties. If the documents don’t specifically name an administrator, then the plan sponsor (typically the employer) will assume that role. Many small businesses with a Savings Incentive Match Plan for Employees (SIMPLE) 401(k) plan and self-employed people with their own solo 401(k) assume the role of administrator.
Administering a plan entails many responsibilities. Some of these tasks require specialized knowledge of retirement plan rules and the use of complex record-keeping systems. The rules also require plan administrators to furnish information to plan participants, beneficiaries, and the relevant government agencies on a regular basis.
For this reason, plan administrators often outsource many tasks to a third-party plan provider with experience in these areas, such as a financial services company like Vanguard or Fidelity.
401(k) plan administrators are considered fiduciaries under the law. As such, they are required to act in the best interests of plan participants and beneficiaries.
Because 401(k) plan administrators are fiduciaries, they can be held “personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets,” according to the U.S. Department of Labor.
Becoming a 401(k) Administrator
The rules that govern 401(k) plans are complicated, can change frequently, and require that an administrator continually pay attention to any changes in the law. The administrator of the 401(k) plan ensures that the company follows the law and protects the interests of plan participants and beneficiaries.
Small companies with limited resources may designate a trusted employee who has little specialist knowledge in plan administration. However, once a plan has more than a few participants, companies often hire a specialist or outsource aspects of plan administration duties. That is paid for either by the company or through administrative fees paid by plan participants.
So, in essence, there are two main routes to becoming a 401(k) plan administrator:
- If you work in a small company, you might be named as the plan administrator, even without any specialist knowledge of 401(k) plans.
- You can choose to become a professional 401(k) plan administrator and work either as the employee of a company with its own 401(k) plan or for an organization that provides administrative services to other companies with 401(k)s.
Despite the complexities involved in plan administration, there is no official educational requirement or accreditation process for 401(k) plan administrators. Many new administrators simply have to learn on the job.
However, there are some training programs that may be of help. The 401(k) Practice Builder certificate program, offered by the National Association of Plan Advisors, is a fairly short, relatively inexpensive option for those looking for an introduction to the subject. The same organization also offers a more in-depth program leading to a Certified Plan Fiduciary Advisor (CPFA) credential.
What information are 401(k) plan administrators required to provide participants?
Plan administrators must provide plan participants with a variety of different documents on a regular, specified schedule. When an employee joins the plan, they should receive a Summary Plan Description (SPD), which details the rules of that particular plan. If the SPD is amended, the administrator should provide a Summary of Material Modification (SMM).
Each year, the administrator should also provide a Summary Annual Report, describing the plan’s financial condition. Either quarterly or annually, depending on the plan, administrators must provide each participant with an individual benefits statement showing how much money they have in their account and how much of it is currently vested. Those are some of the most important documents, but there are others as well.
What information are 401(k) plan administrators required to provide to the government?
401(k) plan administrators or sponsors must file a Form 5500 with the government each year. It reports on the plan’s operations, financial condition, investments, and other matters. There are several versions of Form 5500, depending on the size of the plan.
Can a 401(k) plan administrator be sued?
As a result of a 2008 U.S. Supreme Court ruling, a plan administrator can be now sued by 401(k) plan participants if their “misconduct impaired the value of the participant’s individual account.”
The Bottom Line
The rules that govern 401(k) plans stipulate that each plan must have an administrator to oversee and manage the plan on a day-to-day basis, as well as keep it in compliance with changing laws. Some small companies may choose to administer their 401(k) plans themselves, but many outsource much of the administrator’s role. There is no official education or accreditation requirement for 401(k) plan administrators, but there are training courses that can provide educational resources.