Are You Well Served?

Employers sponsoring 401(k) plans depend on their service providers to help them offer a better retirement plan and operate their plan compliantly under ERISA.  To assist, we describe below the basic responsibilities of key plan providers as well as additional services employers may seek to enhance their participants’ experience and ease their plan operations.


The recordkeeper is a highly visible service provider as it offers online accounts for each participant and for the sponsor.  Participants generally select deferral amounts and investments on their site and can view their plan balances; employers submit payroll reports with deferrals and company contributions.  The recordkeeper instructs a custodian how to invest all plan contributions.

Many recordkeepers do more.  Participant and sponsor websites vary, with the best participant sites including retirement calculators as well as articles and videos on basic financial and retirement topics.  Best sponsor sites allow sponsors to access a variety of reports.  They can include portals for independent Third Party Administrators or auditors to obtain plan information.

Many recordkeepers assist with compliance.  This can include tracking participant eligibility, ensuring deferrals match participants’ online selections, alerting sponsors when anticipated payroll reports aren’t received, sending notifications on behalf of sponsors and documenting their transmission, and automatically rolling out terminated participants with balances of $5,000 or less.

Recordkeepers can include those companies selling their proprietary mutual funds as well as independent firms whose “open architecture” permits access to a wide array of investments.

Third Party Administrator

The Third Party Administrator or TPA is best known for providing the 401(k) plan documents, conducting annual testing, calculating Safe Harbor and discretionary contributions, and preparing the annual Form 5500 for the sponsor’s signature.

The TPA should consult with the employer on the company’s strategic needs as many plan design possibilities exist to increase employee participation and savings, promote recruitment and retention, reward selected employee groups, allow highly compensated and key employees to make IRS maximum-allowable deferrals, and limit the potential liability of plan fiduciaries.  Also, the TPA should be available to answer questions on plan testing issues and the Form 5500. 

TPA services can be provided by the recordkeeping company (known as a “bundled” arrangement) or plan sponsors may hire an independent Third Party Administrator. 

Some TPAs are willing to serve as an ERISA 3(16) Plan Administrator.  Under an agreement, the TPA will act on behalf of the plan sponsor, relieving fiduciaries of responsibility and potential liability for defined administrative tasks.  This can include approving plan distributions, signing plan documents and approving the Form 5500.  The plan sponsor should review the agreement carefully, as 3(16) Plan Administrators vary in the areas for which they will assume responsibility.  


The custodian receives all plan contributions and executes all investment buy and sell transactions per participants’ selections.  Additionally, the custodian collects dividends and interest.  The custodian holds and safeguards all plan assets, providing statements for review and verification by the plan sponsor.


Advisors to 401(k) plans vary.  An advisor may be a broker or the representative of a mutual fund or insurance company, acting in a sales capacity to present those investments he or she is authorized to sell.  Independent, fee-only advisors offer access to a wider universe of investments and recommend funds they believe will best serve a plan.  Some independent advisors even offer model portfolios they have designed.  This provides participants access to the principles of professional investment management available to individual investors working with a private advisor.

Independent Registered Investment Advisors are eligible under ERISA Section 3(38) to serve as a plan’s Fiduciary Investment Manager.  This relieves plan fiduciaries of potential personal liability for the selection and monitoring of investments when the advisor agrees in writing to accept delegation for this responsibility.  Brokers and insurance representatives may not serve in this capacity.  As with an ERISA 3(16) Plan Administrator, plan sponsors should read their service agreements carefully. 

Alternatively, some advisors may agree to serve as an ERISA Section 3(21) co-fiduciary, but this does not remove responsibility or potential liability for investment selection and monitoring from plan fiduciaries.

Advisors may provide investment guidance and financial education to participants.  It’s important that participants be properly invested, and an advisor can help them determine where to place their savings after an individual conversation.  Also, basic financial education through webinars or workplace meetings can help participants manage today’s finances in preparation for their future.

Non-investment-related services from advisors can ease plan management.  Advisors may coordinate with other service providers.  They may review company retirement goals and possible plan design strategies or help plan administrators understand and meet their compliance obligations.

Whether your organization’s 401(k) plan is long-established or you are seeking new providers, it’s worthwhile to discuss the range of services that are available from key providers to help you offer a better retirement benefit and improve plan operations.

This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans.  Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan and hence cannot be a guarantee against fiduciary breaches.