By: Mishelle Becker, QKA
Compliance and Training Coordinator
What Is a Qualified Retirement Plan?
A qualified retirement plan is an employer-sponsored retirement plan that meets the requirements of the Internal Revenue Code and ERISA, allowing both employers and employees to receive certain tax advantages. Common examples include 401(k) plans, profit-sharing plans, and defined benefit pension plans.
Administering a qualified retirement plan well requires a structured network of professionals working together to keep the plan compliant, running smoothly, and focused on participants’ retirement goals. Each party plays a specific role, from the plan sponsor who establishes the plan to the recordkeeper who tracks participant account activity. While each retirement plan service provider’s responsibilities differ, their roles often overlap.
Misunderstanding about these divisions of labor can lead to missed compliance deadlines, inaccurate data reporting, and unmonitored investment options.
If you’re a retirement plan sponsor, understanding the different roles and responsibilities can help you ask the right questions, evaluate providers more effectively, control costs, and avoid compliance issues.
Who is Involved in a Qualified Retirement Plan?
This overview of the key individuals and organizations commonly involved in qualified retirement plan administration will help you maintain a compliant retirement plan that runs smoothly and serves your employees well.
Plan Participant
Although this role isn’t necessarily a part of the plan administration, it is an important role to understand nonetheless. A plan participant is an eligible employee covered by a retirement plan. Active employees, including those eligible participate in the plan but do not have an account balance, retired or terminated employees that still have an account balance in the plan, or a beneficiary or alternate payee (designated individuals who hold a legal right to a deceased or divorced participant’s account) are all considered participants.
It’s important to understand who is a plan participant, as these individuals have a legal right to receive plan information including benefit statements, fee disclosures and annual summaries. The total number of participants also dictates how a plan files its annual tax return.
Retirement Plan Sponsor
The plan sponsor is the employer or organization that establishes and maintains the retirement plan for its employees. The plan sponsor is responsible for making high-level “settlor” decisions, such as designing plan features, adopting plan amendments, or deciding whether to terminate the plan.
While many responsibilities can be delegated to retirement plan service providers, the plan sponsor is ultimately responsible for selecting and monitoring those providers, making sure the plan operates according to its terms, and complies with federal laws, like ERISA.
Additional information about the responsibilities of a plan sponsor can be found here.
Retirement Plan Administrator
The plan administrator is the person or organization responsible for the day-to-day administration of the plan. Those responsibilities include providing required disclosures and notices to participants, maintaining plan records, coordinating required filings, and selecting the plan’s service providers.
In many cases, the plan sponsor also serves as the plan administrator unless another party is designated in the plan document.
Additional information about plan administration and maintenance can be found here.
Custodian
A custodian is a financial institution, such as a bank or brokerage firm, that holds and safeguards the plan’s assets.
The custodian executes transactions as directed by the trustee but generally does not have discretionary authority over the assets. Its primary responsibility is to hold securities and other assets for safekeeping, helping minimize the risk of theft or loss.
Plan Trustee
The plan trustee is the individual or institution with legal authority and discretion over the management of plan assets. Under ERISA, trustees have a fiduciary duty to safeguard plan assets and manage them solely for the benefit of participants and beneficiaries.
Think of it this way: the custodian holds the assets, while the trustee directs what happens with them. Trustees are always considered fiduciaries.
The trustee’s exact responsibilities depend on the type of trustee arrangement in place. A discretionary trustee makes investment decisions on behalf of the plan while a directed trustee follows the instructions of another named fiduciary regarding investment decisions.
Plan Fiduciary
A fiduciary is anyone who:
- Exercises discretionary authority or control over the management or administration of the plan
- Has authority or control over the management or disposition of plan assets
- Provides investment advice for a fee or other compensation related to plan assets.
Fiduciaries are legally required to act solely in the interests of participants and beneficiaries, follow the terms of the plan document, act prudently, and avoid conflicts of interest.
Financial Advisor
In a defined contribution plan, the financial advisor helps bridge the gap between the plan’s technical requirements and participants’ retirement goals. Their role may include both investment oversight and participant support.
A financial advisor may serve as a fiduciary under either ERISA Section 3(21) or 3(38) to help select and monitor the plan’s investment lineup.
3(21) Investment Advisor
A 3(21) investment advisor acts as a co-fiduciary. They provide investment advice and recommendations, but the plan sponsor makes the final decision about whether to add, remove, or replace investment options.
3(38) Investment Manager
A 3(38) investment manager acts as a discretionary fiduciary. They have the authority to select, monitor, and replace investments on behalf of the plan. This transfers more responsibility for investment decisions away from the plan sponsor.
Financial advisors often support retirement plans through investment menu design, performance reporting, fee benchmarking, participant education, and enrollment assistance.
Recordkeeper
A recordkeeper is a third-party service provider responsible for maintaining financial and retirement plan records at both the plan and participant level. Accurate recordkeeping helps support participant benefit calculations, compliance testing, government reporting, and plan audits.
Often referred to as the plan’s “bookkeeper,” the recordkeeper tracks participant account balances, processes contributions and investment transactions, and provides account statements. The recordkeeper typically also provides the online platform where participants can access and manage their accounts.
Payroll Provider
A payroll provider is not typically considered a retirement plan fiduciary, but it often plays an important role in plan administration. Payroll providers help process employee deferrals, track compensation, and provide data used for eligibility determinations, contribution calculations, and compliance testing.
Because retirement plan administration relies heavily on accurate payroll information, timely communication between the plan sponsor, payroll provider, and other service providers is essential.
Retirement Plan Committee (Optional)
Some larger organizations establish a retirement plan or investment committee to help oversee fiduciary responsibilities. Committee members may assist with reviewing investments, monitoring service providers, documenting decisions, and helping the plan sponsor fulfill its oversight responsibilities.
Third-Party Administrator (TPA) – Watkins Ross
Managing a retirement plan comes with a wide range of administrative and compliance responsibilities. Having a Third-Party Administrator (TPA) can help plan sponsors manage many of the administrative and compliance responsibilities associated with maintaining a retirement plan.
Watkins Ross provides a range of services to support plan sponsors, including consulting on plan design and compliance strategies, assisting with plan documents, and providing ongoing qualified retirement plan administration.
We can help you:
- Calculate vesting schedules
- Process benefit payments
- Perform annual compliance testing
- Calculate employer contributions
- Prepare Form 5500 filings
Our goal is to plan sponsors navigate complex regulations and administrative requirements to keep their retirement plans compliant and operating efficiently.
Maximize Retirement Savings With Optimal Retirement Plan Administration
Understanding who does what within a qualified retirement plan can help plan sponsors make informed decisions, maintain compliance, and ensure their plan operates effectively for participants.
However, hiring experienced providers is only part of that responsibility. Plan sponsors should regularly review provider reports, monitor the performance of each retirement plan service provider, and confirm the plan is operating according to its written terms.
At Watkins Ross, we help plan sponsors navigate all the complexities of retirement plan administration with confidence. From plan design and compliance testing to ongoing administration and regulatory guidance, our team works alongside you to help keep your plan compliant, efficient, and focused on serving participants.
Do you have questions about your retirement plan or the responsibilities of your service providers? Contact Watkins Ross to speak with a member of our experienced team and gain the clarity you’ve been looking for.
