Retirement plans are highly regulated, and organizations must consider a multitude of variables when it comes to choosing a 401k plan administrator. Choosing the right partner is essential to the success of a company’s retirement plan and can help your employees strategize to stay on track with their retirement planning journey. The best 401k plan administrator partner will alleviate the employer’s burden of spending hundreds of hours managing their retirement plan to just a few hours a month.
One of the biggest obstacles when hiring a 401k plan administrator is trust. Employers must trust that their administrator will do the right thing and meet all compliance and regulation requirements. They must also trust them to take good care of their employees and their financial future. To help in this process, we have compiled nine essential qualities to look for when hiring a 401k plan administrator:
Table of Contents
- The Importance of Fiduciary Service Roles
- Expertise in Retirement Planning and Investment
- Mastery of Compliance Requirements
- The Necessity of a Transparent Fee Structure
- Prioritizing Outstanding Customer Service
- Offering Tailored Retirement Plan Solutions
- Emphasizing Employee Education and Communication
- The Role of Technology in Plan Administration
- Importance of Accurate Recordkeeping
- Conclusion
- FAQs
1. Fiduciary service roles your 401k plan administrator can serve
Before delving into the three fiduciary service roles, let’s start with what a 401k fiduciary is. When it comes to a 401k, a fiduciary is a person or entity who makes decisions on 401k plan assets that represent the best interests of plan participants. When assessing 401k plan administrators, there are three fiduciary roles that offer different levels of support – 3(16), 3(21), and 3(38). The “3” in 3(16), 3(21), and 3(38) stands for Section 3 of ERISA, which determines the rules and defines fiduciary services roles.
- 3(16) the Investment administrator. They meet ERISA requirements for reporting, making disclosures, and filing paperwork. This role cannot make investment recommendations or decisions.
- 3(21) the Investment advisor. They can educate and recommend investment options to another fiduciary.
- 3(38) the Investment manager. They make investment decisions, recommendations, and monitor investments on behalf of their client. Any 3(38) fiduciary must be a registered investment advisor (RIA) under federal or state law, an insurance company, or bank.
When assessing plan advisor options, consider looking for a 3(38) investment manager who will shoulder ERISA liability and fiduciary responsibility for selecting, monitoring, and updating plan investment choices to reduce risk. Navia’s 401k plan administrator services provide all three fiduciary service roles – 3(16), 3(21), and 3(38).
2. Expertise in retirement planning and investment
A great 401k plan administrator must possess a deep understanding of retirement planning. This includes familiarity with various retirement plans, such as traditional 401ks, Roth 401ks, and pension plans, as well as knowledge of tax regulations, contribution limits, and distribution rules. You need a partner who is seasoned to run your plan correctly.
They also need to have a strong understanding of investment options within the 401k plan. They should be able to assist employees in building diversified portfolios that align with their risk tolerance and long-term goals. A report by Morningstar found that retirement plans offering a diverse menu of investment options experienced higher participation rates and better outcomes for employees. An administrator who can help design and manage a well-balanced investment lineup can contribute significantly to the success of the plan.
Additionally, consider the benefits of a 401k plan administrator who stays up to date with industry trends. According to a report by the Employee Benefit Research Institute (EBRI), employees who have access to plan administrators who keep them informed about plan changes and investment options are more likely to contribute to their retirement accounts consistently.
3. Compliance mastery
The regulatory landscape for retirement benefits is continually evolving. 401k plan administrators must stay current with the recent legal and regulatory changes. A proactive administrator can help identify potential issues before they happen, saving time and money for employers. They can reduce fiduciary liability and administrative burdens for employers. 401k plan administrators that include 3(16) fiduciary services take it a step further by ensuring all administrative tasks are completed in accordance with ERISA requirements, removing virtually all the workload and liability from the plan sponsor. Non-compliance can result in costly penalties and legal issues for both the employer and employees.
For instance, in 2022, the SECURE 2.0 Act brought significant changes to retirement plans, including increased access for part-time workers and changes to required minimum distributions (RMDs). An administrator who is well-versed in such changes can help your organization adapt and ensure your plan remains compliant.
4. Transparent fee structure
Transparency in fee structures is important when selecting a 401k plan administrator. Hidden fees can erode employees’ retirement savings over time, making it critical to ensure that the administrator’s fees are reasonable and clearly communicated.
According to a report by the Investment Company Institute (ICI), fee transparency and competition have led to lower costs for participants in 401k plans. Fees should not be viewed in a vacuum and should always be evaluated by the value of services provided. A reputable provider should provide clients with benchmarking of their services, so they understand what they receive for the fees paid and how that stacks up against other providers in the landscape. Administrators who embrace transparency not only benefit employees but also contribute to the plan’s overall competitiveness.
5. Outstanding customer service
Exceptional customer service for both employers and plan participants are hallmarks of a great 401k plan administrator. High-quality service begins with understanding the client’s needs and being accessible as things inevitably arise or change. A dedicated client service manager who understands the needs and objectives of an employer’s retirement benefit allows for a consolidated point of contact and ongoing consultation.
A partner should be readily available to answer employees’ questions and provide guidance on retirement planning. Timely and helpful responses can significantly improve employee satisfaction.
According to a survey by Willis Towers Watson, 87% of employees indicated that they would like access to financial planning resources as part of their employer-sponsored retirement benefits. An administrator who offers robust customer service can help meet this demand.
6. Tailored retirement plan solutions
Every company and participant base are unique, and their retirement plan should reflect that. The initial plan design, the establishment of matching programs, open architecture investment availability, custom communications, and practical education programs are all ways a quality administrator can optimize an employer’s goals. On top of employer diversity, the retirement landscape is fluid. A high-quality 401k plan administrator will be able to adapt to changes affecting an employer’s situation and the regulatory environment to ensure an employer’s retirement plan goals stay on track. The ability to stay ahead of the curve, pivot, and implement innovative solutions to solve complex problems is vital.
For example, if your organization has a diverse workforce with varying retirement planning needs, a 401k plan administrator who can create custom plan features or targeted communication strategies for different employee groups can be a significant asset.
7. Employee education and communication
A proactive 401k plan administrator takes the initiative to educate employees about retirement planning. They can conduct seminars, webinars, or one-on-one consultations to help employees make the most of their benefits.
Download and share our retirement benefit tips with your employees today! These are just one example of education materials an administrator might provide.
According to a report by the National Institute on Retirement Security (NIRS), employees who receive financial education and communication about retirement benefits are more likely to engage with their retirement plans and save adequately. Administrators who prioritize employee education show they care and support their employees’ financial well-being.
8. Technology savvy
Today’s 401k plan administrator relies heavily on technology. Administrators should be adept at using modern software and tools for plan management, reporting, and employee self-service. Technology-driven solutions enhance efficiency, reduce errors, and provide transparency.
Moreover, digital tools can empower employees to take control of their retirement planning. A study by Vanguard found that participants who use online tools and resources are more likely to make informed investment decisions and save at an appropriate rate for retirement.
9. Recordkeeping accuracy
Accurate recordkeeping is the backbone of successful 401k plan administration. Retirement administrators must maintain detailed records of contributions, withdrawals, and investments. This accuracy ensures compliance with IRS regulations and a seamless administrative process. 360° payroll integration, audit support, 5500 filings, and other required IRS filings should be part of a quality service provider’s model. Good recordkeeping and administration should go almost unnoticed.
In addition, the ability to provide a recordkeeping system that accommodates an individual participant’s needs using technology, financial wellness, and educational tools empowers participants to take control of their financial futures. The accuracy of a recordkeeping system can also impact employees’ retirement savings. Errors in recordkeeping can lead to discrepancies in account balances or missed contributions, potentially causing frustration among plan participants. A reliable administrator can prevent such issues.
Invest in the success of your company with the best 401k plan administrator
Look for these nine qualities when evaluating a 401k plan administrator. And remember, a great 401k plan administrator is not just an administrative function; it’s an investment in your employees’ future and the future success of your company.
See how Navia can support your retirement plan goals today. Download our Retirement and Wealth Solutions datasheet or reach out to our sales team at sales@naviabenefits.com.
FAQs
Q1: Why is choosing the right 401k plan administrator important? A1: Selecting the right 401k plan administrator is crucial because it affects the effectiveness of your retirement plan, ensures compliance with regulations, and impacts the financial future of your employees.
Q2: What are the fiduciary roles a 401k plan administrator can serve? A2: A 401k plan administrator can serve in three fiduciary roles: 3(16) as the investment administrator, 3(21) as the investment advisor, and 3(38) as the investment manager, each offering different levels of support and responsibility.
Q3: How does a transparent fee structure benefit plan participants? A3: A transparent fee structure ensures that all costs are openly disclosed, helping to prevent hidden fees from eroding retirement savings over time, thereby securing better financial outcomes for participants.
Q5: How does technology improve 401k plan administration? A5: Technology enhances the efficiency, accuracy, and accessibility of retirement plan management, empowering employees with tools to make informed decisions about their retirement savings.
