Offering a 401k plan to your employees is a good way attract top talent to your company and provide your employees with an opportunity to save money for retirement. 401k administrators for small business provide essential services to help business owners administrate and manage their 401k plans and the reporting requirements for them.
At Cook Martin Poulson, we provide 401k administrative services in the role of third party administrator. We recognize that you may have questions setting up a 401k and hiring an administrator. In this post, we’ll explain what 401k administrators do and what you should expect when you hire one.
What Does a 401K Administrator for Small Business Do?
A couple of the most common questions we hear about 401k administration is this:
What is a 401k TPA? What does a 401k retirement plan administrator do?
A plan administrator duties may include:
- Designing your employee 401k plan, so that it complies with the legal requirements set forth by the Department of Labor (DOL) and the Internal Revenue Service (IRS).
- Creating a plan that meets your company goals – for example, minimizing your administrative costs while fulfilling your employees’ expectations of the plan.
- Acting as a go-between for the company sponsoring the 401k plan and the 401k record keeper who holds the plan’s assets.
- Helping to prepare the annual tax return and report material related to your company’s 401k plan.
That takes care of the general role played by a third party 401k plan administrator, but here are some of the specific duties they might perform.
- Restating and amending your 401k plan document
- Preparing employee benefit plan statements
- Conducting annual plan testing to gauge compliance with IRS and DOL requirements, including participant contribution levels and non-discrimination requirements
- Calculating vested percentages for plan participants
- Completing Form 5500 to satisfy ERISA reporting requirements for employee benefit plans.
- Approving plan withdrawals and loans.
- Preparing an annual plan census.
This is not a complete list of retirement plan services or TPA duties, but it should give you a fuller picture of the day-to-day activities a TPA will perform in the administration of your plan.
401k Recordkeeper vs. TPA
One of the mistakes that it’s easy to make when setting up a 401k plan is confusing the roles of 401k recordkeeper and the third party administrator.
A good way to think of it is that the TPA is responsible for the big-picture creation and administration of the plan, while the 401k recordkeeper is responsible for tracking contributions, deductions, and other specific financial aspects of the plan.
The 401k recordkeeper’s duties include:
- Logging employee and employer contributions to the 401k plan
- Tracking employee investments and returns
- Processing loans and withdrawals from the 401k plan
- Providing basic customer support to the plan’s enrollees
Unlike a TPA, a 401k recordkeeper cannot advise you on 401k plan design or regulatory compliance. Those jobs are performed by the TPA.
Do You Need to Hire a 401k Administrator?
The decision to hire a 401k administrator for small business may come down to one or more factors. If your company is small and your plan has fewer than 100 eligible participants, you can file your Form 5500 as a small plan. That means you will not be required to submit a 401k plan audit with your filing, and you may not need to hire a 401k administrator.
That said, there are some significant benefits to hiring a 401k administrator. They include:
- TPAs have extensive knowledge of financial management and taxes, so they are ideally suited to advise small businesses about the structure and administration of their 401k plan.
- TPAs are also knowledgeable about investment strategies.
- The right TPA will be able to guide your employees through the process of choosing their investments, understanding asset allocation, and more.
- A TPA can relieve you of the burden of handling the day-to-day administration of your 401k plan, leaving you free to focus on other aspects of running your business.
- A TPA will help you adhere to all regulatory and tax requirements, minimizing the chances that you will be required to pay late fees.
- If you are required to submit a 401k plan audit with your Form 5500, the TPA can conduct help you prepare for the audit and conduct the audit itself.
Our recommendation is to hire a 401k administrator. Designing a plan can be time-consuming and it’s easy to make mistakes that can lead to trouble down the line, including potential compliance or discrimination issues. A TPA will work with you to design a plan that’s fair for both you and your employees.
How Much Does a 401k Audit Cost?
The issue of 401k audit is a nerve-wracking one for employers. You should be aware that they are a requirement for many employers and are therefore quite common.
Audits require careful preparation and planning and the cost to complete one is on top of the regular cost of partnering with a third party administrator to handle your 401k plan.
The cost of a 401k audit will vary depending on the number of eligible plan participants you have and other factors. Some of the things that may impact the cost of your 401k audit include:
- The number of eligible participants in your 401k plan
- The complexity of your 401k plan
- The date of your audit
- The location of your business
The audit date is an element of cost that is often overlooked. Since many businesses have 401k plans that run in tandem with the calendar year, TPAs tend to be extremely busy with end-of-year audits in December. That’s a factor that can increase the price.
The same goes for the location of your office. If your auditor must travel to get to your office, travel expenses will impact the total cost of your audit.
At Cook Martin Poulson, we work closely with our 401k audit clients to determine the scope of the audit and quote a fair price. We’re happy to talk to you about your audit needs at any time.
Tips for Evaluating 401k Auditors
There are many companies, including CPA firms, that perform 401k audits. Because you will likely have several options to choose from, here are some key factors to look for before you hire a 401k auditor.
- Auditor licensing. Auditors must have a valid license from the state’s accountancy licensing body. You should check the status of the TPA’s license before engaging them to do your audit.
- It’s important to choose a TPA that has experience with 401k plans like yours as well as with your industry.
- It’s essential to choose a 401k auditor who will communicate with you regularly and clearly regarding the status of your audit.
- As we mentioned above, the cost of an audit is dependent upon many factors. It’s a good idea to obtain several quotes before choosing an auditor.
Our recommendation is that you ask for references from the TPAs you’re considering and talk to them before you decide who to hire. References are the best way to learn what it will be like to work with a TPA.
Hiring a 401k administrator can help you to comply with regulatory requirements and tax requirements for your 401k plan. You should choose your administrator after careful evaluation and comparison to ensure the TPA you pick is a good fit for your business.
Are you in the market for a 401k administrator? Click here to learn how Cook Martin Poulson can help.