The plan sponsor is the most important party to a Corporate Retirement Plan. The plan sponsor is a fiduciary tasked with making all of the pertinent decisions for the retirement plan. A fiduciary is someone who is in charge of someone else’s money. The Department of Labor requires that the plan fiduciary is acting in the best interest of the parties to the plan. The plan sponsor has access to many different service providers to assist with the fiduciary duties. This post will outline and define the other parties to the corporate retirement plan that assist the plan sponsor.
The recordkeeper is the most visible and interactive party to a corporate retirement plan. The employees engage with the recordkeeper for web access, account statements and account transactions. Plan contributions are submitted to the recordkeeper who is then responsible for investing the money and keeping track of contribution sources. Tracking sources includes employee Traditional or Roth contributions as well as employer contributions. Finally, the recordkeeper engages with the other parties to the plan for reporting and managing participant relationships.
Third Party Administrator (TPA)
The third party administrator (TPA) takes care of all of the compliance work and is often highly interactive with the plan sponsor. The TPA conducts the necessary testing to ensure that the plan is complying with the IRS non-discrimination requirements and participant contribution limits. The TPA also prepares the plan documents and files the form 5500 every year. Finally, the TPA is involved in vesting, participant loans and participant distributions. Essentially, the TPA keeps the plan in line with government requirements.
Depending on whether or not your plan is bundled, the recordkeeper may also act as the TPA. Many providers offer bundled service where they provide the TPA services as well. There are definitely some advantages to this approach. Everything is in one place so the data flow should be a little bit more streamlined. From the plan sponsor’s standpoint, it is one less party to be concerned about. My general rule of thumb is that it depends on the provider and the complexity of the plan. Some providers have stronger TPA offerings than others. I would rather utilize the services of a full service TPA in many cases, especially if the plan has a more complex design.
The investment advisor can make or break the plan. The investment advisor is often the face of the plan working with both the employer and the employees. Many investment advisors act as the liaison between the plan sponsor and the other parties to the plan and plan sponsors often lean on them to assist with the selection of those parties. Once the parties are selected, the investment advisor assists with developing a fund lineup and managing the process to monitor the fund lineup. Finally, the investment advisor interacts with the employees by providing education to them. The educational responsibilities of the investment advisor depend on the plan size and in many cases, the investment advisor may utilize the recordkeeper for some educational services.
It has become very common for the investment advisor to sign on as a co-fiduciary to the plan in one of two levels. The first level is a 3(21) co-fiduciary. Simply put, in a 3(21) capacity, the investment advisor brings recommendations to the plan sponsor for fund changes and the plan sponsor gives the final authority to execute the changes. If the advisor is acting as a 3(38) fiduciary, the advisor can make changes without presenting the recommendations to the plan sponsor.
Managing a corporate retirement plan is not a simple task. There are many rules and regulations to follow. The parties above are all very important in assisting plan sponsors with making critical decisions that impact their retirement plans. My advice to plan sponsors would be to make sure you take the time to understand the roles and responsibilities of each party as they relate to you and your plan and hold those parties accountable for executing on their duties.