What Is a Plan Administrator?
A plan administrator is a person or company responsible for managing a retirement fund or a pension plan on behalf of its participants and beneficiaries. The plan administrator is tasked with ensuring the funds are properly collected and distributed to all qualified participants.
In terms of fiduciary duty, the plan administrator has a duty to act in the interest of the plan's participants, not the company that employs them. Typically, the administrator is not an employee but instead, a third-party contractor.
- The plan administrator manages the day-to-day operations of a retirement fund or pension plan.
- The administrator is typically an outside contractor with specialized skills and knowledge of the regulations on such funds.
- The administrator does not make investing decisions.
Understanding the Pension Plan Administrator
A plan administrator may not make investment decisions for a fund but may ensure that money contributed to it is being invested correctly in accordance with its stated goals.
In short, the administrator manages the day-to-day operations of a company retirement savings or pension fund plan. More specifically, the plan administrator ensures that the money is being contributed to the fund correctly, that the participant accounts are properly managed so that they have an appropriate asset allocation, and that payouts are promptly distributed to its beneficiaries.
The administrator's core tasks include:
- Enrolling company employees in their respective pension plans
- Calculating a plan beneficiary's entitlement
- Making the correct scheduled payments to beneficiaries
- Making sure all plan data is accurate and is provided to participants in a timely manner
- Paying pension benefits to ex-spouses of beneficiaries, according to court rulings and regulations
- Fielding questions, concerns, and complaints from beneficiaries
Most companies prefer to outsource the plan administrator's duties.
Out-Sourcing the Job
For the sake of simplicity and cost savings, a small employer may elect to keep the company's plan administration duties in-house. However, as the number of employees grows, the task becomes more time-consuming and complex. It becomes worthwhile for the employer to hire a professional to be the plan administrator.
Also, professional plan administrators know the laws and regulations that govern retirement savings and pension programs. For example, in Ontario, Canada, pension plans must comply with the Pension Benefits Act (PBA).
The fees charged by a plan administrator may be paid by the employer or by the fund participants or may be shared.
Delegating the Investing Decisions
A company or its plan sponsor often delegates the responsibilities for investing money in the funds to professional investment companies.
The retirement plan sponsor will typically hire an outside investment advisor to handle the investment of the plan's assets. In the case of a defined contribution plan like a 401(k), the investment advisor will help select the plan investment menu to be offered to the plan participants. In the case of a defined benefit pension plan, the outside advisor will typically manage the investments in a fashion agreed upon wit the plan sponsor.
These service providers, regardless of whether they are employees of the administrator or third parties, are subject to the same duty of care as the administrator.