Avoid risks and improve business success with strong 401(k) plan administration

Retirement savings have grown significantly in the United States. According to data from the Investment Company Institute (ICI), as of March 2021, there were 106 million participants in 401(k) plans in the United States, with total assets of $6.7 trillion.

This growth can be attributed to several factors, including the increasing popularity of defined contribution plans over traditional defined benefit plans, the widespread adoption of automatic enrollment features, and the ongoing shift towards self-directed retirement savings.

For employers, 401(k) plans help attract talent, lower turnover, and provide tax benefits for employees and the company. Get insights into administration roles and challenges that can help you build a strong, smooth functioning 401(k) plan that serves your business and its employees.

401(k) administration: Key members and systems

There are four key components in 401(k) administration:

• Plan administrators oversee the 401(k) plan’s day-to-day operations, including recordkeeping, compliance, and reporting at the company. They work closely with third-party service providers, such as recordkeepers, custodians, and investment managers, to see that the plan is operating efficiently and complies with all applicable laws and regulations.
• Plan participants are the employees who contribute to the 401(k) plan and receive benefits from it. They work with plan administrators and third-party service providers to verify that their contributions are properly recorded and invested. Plan participants are responsible for managing their own retirement savings, including selecting investment options, and monitoring account balances.
• Third-party service providers are financial institutions that provide services to the plan, such as recordkeeping, custodial, or administrative services. They also offer investment options that plan participants can use. Third-party service providers work closely with plan administrators to see that the plan is operating smoothly and that participants receive the services they need.
• Payroll and HR systems at the company are also critical to a 401(k) plan’s success. Payroll systems deduct contributions from employees' paychecks and remit those contributions to the plan. HR systems also manage employee data, such as employment status and salary information, which is used to determine eligibility for the plan and to calculate contributions.