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What benefits does a plan administrator get?

Our company 401K has a sponsor and an administrator. What benefits are available to them relative to our plan?

Nov 25, 2013 by William from Salisbury Mills, NY in  |  Flag
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10 votes
Peter C. Karp Level 20


The other advisors provided some good answers to your questions. Just to reiterate, the sponsor of a 401(k) plan is typically the employer and they benefit by providing their employees with an opportunity to save for retirement and reduce taxes. The sponsor/employer also receives tax advantages. The administrator of the plan can be either an independent third party firm or in the case of a bundled platform it would be the recordkeeper/investment provider. In either case, they receive fees for their services which included 5500 reporting, compliance testing and all of the administrative paperwork associated with a 401(k) plan that helps the employer/sponsor stay in compliance. Your plan advisor should be able to provide more information on the roles of each and the fees and services they are providing. If you are not working with an advisor and would like more information, please contact our office at 415-345-8185 or email peter@karpcapital.com.

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Comment   |  Flag   |  Dec 02, 2013 from San Francisco, CA

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6 votes

Hi William,

I’ll guess that you saw the Plan Sponsor and Plan Administrator listed on the Form5500 tab in the Brightscope web site for your company’s plan. Rich has described the roles of the Sponsor and Administrator. Both Sponsor and Administrator are Fiduciaries of your Plan. Other common plan fiduciaries include Trustees and members of the Plan’s Investment Committee. In house Fiduciaries should not benefit directly from the plan for performing their role if they work for the employer. Their role is to make decisions in the best interests of the plan participants. They are compensated by the employer for performing that role, not by the Plan. Of course these individuals may also be participants in the plan and in that way can benefit from the decisions they make to improve the plan.

The Plan may hire outside advisors including Investment Managers, Compliance Consultants, Directed Trustees and Third Party Administrators who agree to function in a fiduciary role. These outside advisors may be compensated by the Plan for performing their role.

There is much more to it. But hope this helps.

Comment   |  Flag   |  Nov 25, 2013 from Woodbridge, VA

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Rich Winer Level 20

William, I'm not sure if I understand what you mean by benefits. The plan sponsor is the company you work for, and most establish plans to benefit their employees. As I'm sure you know, your 401k plan allows you to invest money for retirement on a tax-deferred basis. The maximum you can invest in your 401K plan is likely much more than you could invest in an IRA if your employer did not offer a 401K plan, so that is an additional benefit. If your employer matches your contributions up to a certain amount, that too is a nice benefit.

Some smaller, privately owned companies will establish a 401K plan so that the owner(s) can shelter as much current year income as possible from taxes and invest that money for retirement, more than they could in an IRA. However, their ability to shelter the maximum amount is dependent on their employees contributing certain percentages of their income to the plan.

The plan administrator handles all the administrative paperwork and government filings. They also do "plan testing" to make sure that the plan is in compliance with government regulations. For example, the owner(s) of a company can only have a certain percentage of their money in the plan relative to their employees total contributions. If they have too much, the plan is deemed to be "top heavy." The plan administrator helps the plan sponsor stay in compliance. The plan sponsor is usually paid a fee for their services. Sometimes, the plan custodian (usually a bank, brokerage firm or insurance company) will bundle their custodial services with administrative services for an additional fee.

I'm not sure if this explanation is exactly what you were looking for, but I gave it a shot.

1 Comment   |  Flag   |  Nov 25, 2013 from Woodland Hills, CA
Rich Winer

Oops, I meant the plan administrator is paid a fee for their services. The plan sponsor is who pays them. However, when plan custodians bundle custodial and administrative services, the fee for those bundled services is sometimes passed along to the plan participants… meaning you.

Flag |  Nov 25, 2013 near Woodland Hills, CA

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4 votes

I agree with what the others have said. Plan Sponsor - bears legal responsibility for sponsoring the plan. Administrator - handles everything related to the plan document, required testing, IRS filings. Administrators get paid for the services they provide, outlined in a service agreement.

One more thought: Sometimes the term "plan administrator" is used to refer to the person at the company (an employee) responsible for handling the administrative tasks related to the retirement plan. They don't get any benefits...except more work. It's not the best use of the term, but I wanted to point that out since I'm not sure of the context you saw it in originally.

Comment   |  Flag   |  Dec 02, 2013 from Alexandria, VA

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2 votes

As Rich said... well... ~8^) Good job, Rich...

The answer is similar to the question about what a CPA or Attorney, etc, get out of doing what they do?

Simple... they all get paid to perform a service, which without, might land your employer in trouble with the IRS, which could end up with them fined or spending time behind bars, thus, not running the business, paying the bills, including the wages of the employees that work for them, nor their 401k match...

In addition to their compensation, I know many fine Administrators who actually love what they do, and seem to really enjoy that feeling of a job well done, and being of service to their fellow human beings.

Others... just like in all fields... just like the money I suppose...


Comment   |  Flag   |  Nov 25, 2013 from Springfield, MO

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