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401(k) administration – who are all these people, what do they do, and why?

The three main players in the 401(k) world are the employees (participants), the employer (plan sponsor), and third-party service providers.   Let’s meet the third-party service providers:


One of the many government-mandated requirements surrounding your 401(k) plan is that employee 401(k) balances are held in custodial accounts.  The custodian is like the plan’s bank and is responsible for moving funds into individual investment accounts as they receive instructions from the recordkeepers.


Maintaining the accounting of your plan’s assets and earnings is the job of recordkeepers.  With many different features and numerous transactions happening in 401(k) plans all the time, such as pre-and post-tax deferrals, matches, profit-sharing, and rollovers, it’s important that the books are kept in good order and in real time.

Third Party Administrator (TPA)

TPAs handle many of the administrative roles on behalf of the employer, or plan sponsor.  They run many daily aspects of the retirement plan, including making sure the plan stays qualified (in compliance with the Internal Revenue Service), assisting with deposits and withdrawals, preparing and processing loan paperwork, participant testing, and preparing annual reports as required by the IRS, Department of Labor, and other government entities.  They also provide statements to employees and can host websites that allow for participants to make changes to their holdings.

Plan Investment Advisor

A plan’s investment advisor can take on, consult on, or coordinate many responsibilities, including developing the plan documents and plan design, helping select recordkeepers and TPAs, and acting as an investment manager who selects and monitors the plan’s fund investments. They can also provide advice and answer compliance questions and assist employees in 401(k) investment selections and financial advice.  One of the most important elements of a successful retirement plan is education for your employees on their financial wellness.

There are many different types of financial advisors in the 401(k) market, including insurance agents, brokers, financial planners, and registered investment advisors.  Compensation for these advisors can vary based on the advice given, which can create conflicts.  Hiring an investment advisor who shares in the fiduciary responsibility can simplify the process of meeting your obligation to the plan and your employees.

Learning about who your providers are, what services they’re responsible for, and what you’re paying for them is one of the first steps to successful administration.  It’s in your employees’ best interest to do so.  No one wants to pay for ineffective and inefficient services or for services they don’t need or receive.