Does your Retirement Plan name a Plan Administrator?

All too often business owners of both large and small companies don’t realize that if their Retirement Plan Document does not specify an Administrator, as Plan Sponsors they automatically assume oversight responsibility for the day-to-day administration, management and decision making initiatives for the Plan.  

Typically the company owners do not have the experience, appropriately trained staff, or the time needed to administer their Retirement Plan correctly and in compliance.

This can be a very risky situation for those employers who are not aware that they are, by default, answerable.

After all, if employers (the Plan Sponsors) do not execute their role properly, failing to adhere to defined standards, they could find themselves personally liable for any improper use of the Plan’s assets. In fact, they could be expected to rectify any financial losses that occur as a result of their actions.

It is important to realize that in this circumstance, ignorance is not bliss! There is no excuse for employers who are uninformed or naive regarding the full extent of their legal obligation as a Plan Administrator if an administrator is not named in their document.

How can employers confidently mitigate their liability?

Outsourcing the position of Plan Administrator to an expert in the field is one of the most effective options that employers have to protect themselves from personal liability and to free themselves from time-consuming administrative tasks. 

Section 3(16) of the Employee Retirement Income Security Act (ERISA) provides a definition for a Plan Administrator as one who is “responsible for the daily operation of the Plan”.  As such, a 3(16) Plan Administrator effectively relieves employers/Plan Sponsors of this duty and reduces the administration burdens and the personal liability risks they would otherwise face.

Instead of placing accountability squarely on employers, the ERISA Section 3(16) Plan Administrators assume control over these key tasks:

  1. Reviewing the eligibility of the participants
  2. Ensuring Plan document compliance
  3. Filing Form 5500
  4. Benchmarking vendor fees and services to ensure the best and most efficient services for the Plan and its participants
  5. Providing added fiduciary protection

Those owners who entrust the Plan administrative functions to a professional not only safeguard their own situation but they can also dedicate more time for more important considerations, such as strategic planning, which ultimately enables them to lead the company to greater profitability. 

Administering Retirement Plans is complicated

If the Plan Document does not name a Plan Administrator, the owners/employers may select an outside party to serve as their Plan Administrator.  ERISA Section 3(16) guides this decision and clearly and carefully defines the Plan Administrator as “the fiduciary specifically named in the Plan Document who is appointed to handle all plan operations.”  Once an ERISA 3(16) Plan Administrator is officially named, that person will be charged with the five tasks listed above as well as additional assignments, including:

  • Reviewing, processing and monitoring all 401(k) loans
  • Reviewing plan eligibility
  • Documenting that the Plan conforms to all Internal Revenue Service and Department of Labor regulations 
  • Verifying the accuracy of the Plan and filing Form 5500
  • Reviewing and verifying non-discrimination compliance testing

Understanding the vast scope of the fiduciary role

For many employees their contributions to their company’s Retirement Plan represents their entire future financial well-being. This represents an extraordinary moral and legal responsibility.  That is why employers, human resource personnel, Plan Committee members, officers, and directors must identify a competent and experienced professional Plan Administrator who will ensure the company’s Plan is compliant and well-managed on behalf of the company and every participants.