GVT: Navigating the Maze of 401(k) Plan Administration - R. Scott Mahood

S Mahood
R. Scott Mahood, J.D., CEBS
Vice President, Retirement Services Relationship Manager
(585) 586-6900

August 2016

The overwhelming majority of employers find it difficult to understand and address the administrative functions and requirements of their respective benefit plans and programs. The proliferation of different benefit programs being offered employees has only added to the burden, especially since most if not all of these benefits are subject to governmental regulation. One further complication is that each distinct benefit requires its own administrative functions and regulatory requirements with little if any coordination with the other benefits being offered.

Against this backdrop, human resources and benefits personnel face ever changing and increasing administrative burdens. In the nearly 40 years that have elapsed since enactment of ERISA, Congress, the Internal Revenue Service and the U.S. Department of Labor have steadily and continually demanded more administrative oversight, reporting and requirements of plan sponsors. Exceptionally large employers often have a specialized benefits department staffed with enough employees trained in this area—or in specific benefits—to easily address these increased demands. But small employers have only one or two employees to administer benefits, and all too often those employees perform multiple functions—payroll, human resources and/or billing.

The result of this additional regulation is that all employers maintaining qualified retirement plans are inundated and often overwhelmed by retirement plan administration. Worse yet, employers are generally aware that administrative and regulatory burdens have increased, but are unaware of (1) what and how many specific administrative requirements must be fulfilled, (2) when they must be addressed, and (3) who is responsible for meeting these requirements.

By regulation, each 401(k) plan must have a Plan Administrator appointed who is ultimately responsible for the administrative functions/requirements of the plan. If no specific Plan Administrator is appointed, the employer is deemed hold this capacity.

In practice, most employers engage one or more plan providers to handle the various administrative and investment functions required by a 401(k) plan. These providers can include a record keeper, third party administrator, trustee and even an investment advisor. But which administrative and investment management functions are the responsibility of these providers, and which are reserved for the employer/plan administrator?

A detailed, comprehensive overview of all administrative responsibilities and regulatory requirements is beyond the scope of this article. However, 401(k) plan’s requirements generally fall into one of four categories:

  1. Implementation and execution of the plan document, any plan amendments, the trust agreement and agreements with service providers.
  2. Day-to-day ministerial functions that can include enrolling participants, coordinating with payroll to set up participants’ contributions, ensuring participants receive required documents and notices, signing the Form 5500 filing and approving participant distributions.
  3. Providing plan providers—most notably the recordkeeper or third party administrator—with information and data needed to set up participants, perform recordkeeping and testing and complete the annual Form 5500.
  4. Reporting to the IRS, DOL and plan participants; most notably the preparation and filing of Forms 5500, 1099-R, and 8955-SSA and distribution of the Summary Plan Description, Summary Annual Report, fee disclosure and various required notices to participants.

Many of these administrative and regulatory functions can be assigned to various service providers employed by the plan sponsor. But employers must face the reality that they are responsible for a substantial number of these tasks.

Genesee Valley Trust appreciates that small plan sponsors don’t fully understand the scope and nature of the administrative and regulatory requirements, what and when they are required and which party (the employer or a specific service provider) is tasked with addressing the requirement.

We work with our clients to clarify this murky landscape and help them understand their role (and responsibilities), and those of their vendors. We view this as essential and simply a part of what we do as Discretionary Trustee. By providing this guidance and support, we can help our clients avoid the pitfalls and oversights of 401(k) administration which often lead to mistakes, regulatory failures and corrections.