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Understanding the Different 401(k) Service Provider Roles and Responsibilities

Whitney C. Massey, AIF®, CPFA, C(k)P® 
September 21, 2022
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setting up a company retirement plan, selecting a 401(k) service provider is a fiduciary decision that requires due diligence and documentation. (Same is true when changing plan providers.)

Also required is the ongoing monitoring of service providers to ensure they’re fulfilling their obligations (doing what you paid them to do and doing a good job at it ;-).

Let’s look at the service providers involved in most 401(k) plans.

 

401(k) Service Providers

There are 3 main administrative service providers that can be hired separately or bundled together:

Recordkeeper:

  • Responsible for tracking contributions, earnings and investments, the participant platform, directing the Custodian to execute trades as requested by plan participants, valuing investments, providing participants with statements on their accounts, processing distributions checks, etc.

 Third Party Administrator (TPA):

  • Responsible for keeping the plan in compliance with ERISA and IRS regulations, performing an annual accounting, generating certain documents that are required to be generated each year (SARs, participant certificates, 1099Rs), completes the Form 5500 and schedules, etc.

    Note: the TPA is not to be confused with the “Plan Administrator” who is documented in the plan documents as a key fiduciary having responsibility to administer the plan in accordance with regulations – and is typically a named role or person at the company.  (The Plan Administrator usually hires a TPA to handle many of the administration functions.)

 Custodian:

  • Responsible for holding the plan assets in a trust and executing trade instructions sent by the plan recordkeeper.

 

Additional Plan Service Providers May Include:

Auditor / CPA:

  • Responsible for auditing a plan for annual compliance. (Federal law requires employee benefit plans with 100 or more participants to have an audit by a CPA as part of their obligation to file an annual return / report (Form 5500 Series).

ERISA Attorney:

  • Responsible for providing legal counsel, drafting legal documents, updating and reviewing plan documents, and representing clients before courts, administrative agencies, and other tribunals.

Insurance Provider (ERISA Bond, Fiduciary Insurance):

  • Responsible for underwriting the required ERISA bond for the plan and optional fiduciary insurance.

Advisor:

  • When acting as a broker, may sell investments and provide general education to the plan sponsor and participants.
  • As an Investment Advisor Representative (IAR), may also provide investment advice to the plan sponsor as a 3(21) fiduciary.
  • As a Fiduciary Advisor under the Pension Protection Act, may provide investment advice to the plan participants. 

3(38) Investment Manager

  • Responsible for managing the plan investments, taking on the primary fiduciary responsibility for investment decisions.

 
Documenting Service Provider Due Diligence

In your plan’s compliance file, you should have documentation that shows what you reviewed and how you decided upon each of your plan’s service providers.

On a regular basis you should review their services and be able to demonstrate a prudent provider monitoring process is in place.

If you need assistance with building your plan’s compliance file and documenting a review of plan providers, contact me at whitney@reserveinvestments.com or (949) 777-0311 and we’d be happy to help.  Additionally, we have a plan provider review checklist we’d be happy to provide you with upon request.


 This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Contact

Office: (949) 777-0311

Fax: (949) 777-0315

4100 Newport Place Drive

Suite 530

Newport Beach, CA 92660

mark@reserveinvestments.com

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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The registered individuals with The Reserve Investments are Registered Advisors or Registered Administrative Associates with, and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through The Reserve Investments, a registered investment advisor and separate entity from LPL Financial. CRPC and CRPS conferred by the College for Financial Planning.

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Mark M Mitamura | CA Insurance License #0E13350 | 4100 NEWPORT PLACE DR STE 530 NEWPORT BEACH, CA 92660-1429
David M Choi | CA Insurance License #0G02394 | 4100 NEWPORT PLACE DR STE 530 NEWPORT BEACH, CA 92660-1429
Whitney C Massey | CA Insurance License #0N07605 | 4100 NEWPORT PLACE DR STE 530 NEWPORT BEACH, CA 92660-1429
Randy Zierhut  | CA Insurance License #0680671 | 4100 NEWPORT PLACE DR STE 530 NEWPORT BEACH, CA 92660-1429
Charly J Rowan  | CA Insurance License #0G39219 | 4100 NEWPORT PLACE DR STE 530 NEWPORT BEACH, CA 92660-1429

Charles Morris  | CA Insurance License #0C02826 | 4100 NEWPORT PLACE DR STE 530 NEWPORT BEACH, CA 92660-1429