Understanding the Players in Your 401(k) Plan
Retirement Planning
Date: 9 Aug 2021

Understanding the Players in Your 401(k) Plan

A 401(k) plan is a plan offered to you by your employer to help you grow funds, contributed by both you and your employer, intended for use during retirement. First introduced in 1978, the 401(k) plan has gained immense popularity as the most common type of employer-sponsored retirement plan in the US.  Millions of workers regard it as a must-have benefit when considering employment. Why is this? Because more and more people depend on 401(k) plans to supplement their retirement income.

Today, as millions of workers invest in these plans, their employers may match all or some of these contributions. The most favorable part about a 401(k) plan, is that the growth in the account is tax-deferred until retirement when the employee starts withdrawing from the account. This defined contribution plan is sought after by many employees who need to plan for financial security during retirement, especially because fewer employers are offering traditional pension plans.

However, given the many benefits for the employees, from an employer’s perspective establishing and maintaining a 401(k) plan is nothing short of a challenge. It requires extensive investment and administrative professionals who must follow specific rules and laws governing these plans.  Therefore, a well-administered and legally compliant 401(k) plan may not be the work of an employer alone.

The following are some of the key players involved in administering employees a solid 401K plan.  Role of the Investment/Financial Advisor

While your Financial Advisor is not likely the first person you will encounter when starting a 401K plan, they are one of the most important players involved in the administration of your plan. A financial advisor will generally take on the continuous responsibilities of reviewing and guiding you through the investment planning journey that is, making appropriate financial decisions for your retirement plan.

Moreover, your financial advisor will most often take the lead in overseeing the plan and all the players to help ensure everything is running smoothly.  A financial advisor should also offer participant education services to ensure employees understand the benefits of their employer plan and how to make the most of their investments.  Some advisors even offer individual meetings to provide comprehensive financial planning.

Every financial advisor may have a different set of responsibilities. However, generally your advisor will be involved in significant ways in helping to ensure your plan is running smoothly and providing participants with knowledge to best use the plan. (Add in CTA (call to action pharases and links to the contact us page)

Role of the Record Keeper

A record-keeper is a primary 401(k) player as they tend to be the key player most particpants interact with the most. Fundamentally, the record keeper will set up access points for the participants (mainly a website) through which they can log in to view their accounts, manage and make changes for the investments, remit deposits, add new participants, and request distribution when applicable.

Furthermore, apart from the on-demand access points for participants, a record-keeper prepares financial reports and quarterly participant statements and works closely with your financial advisor to make available enrollment information and education support to keep your plan a good working order.

In addition to the many duties of a record keeper on the forefront, they also work on the backend by keeping track of the plan’s participant assets, investment and contribution types, and options.

Role of the Third Party Administrator (TPA)

The TPA is responsible for many duties behind the scenes that keep your plan compliant with the law and regulations.  This ranges from providing a legal plan document and performing annual compliance tests to calculating contributions, preparing annual Form 5500, and serving as an ongoing resource for assistance in any technical retirement plan concerns.

A TPA can be best defined as a solid resource for employers as soon as they step into the realm of a 401(k) plan and happen to have doubts, confusion, or queries. TPAs do the required work to ensure that the plan is smoothly executed and deals with any issues caused by the ongoing demographic changes or retirement shifts that the business and employees may experience.

However, unlike the record keeper who serves as the interface for employees, a TPA works directly with the employer or the plan sponsor. A TPA should ensure that your plan is continuously evolving to address your employer’s changing business needs and other shifts in the regulatory and legal environment.

Role of the 4Employer/ Plan Sponsor

Employers who provide a retirement plan for their employees are providing a great benefit to their team. However, they must administer plans fully informed about the legal and financial technicalities involved. Their role is not limited to just coming up with a 401(k) plan, establishing it, and offering it to your employees. Ultimately the employer is responsible for the decisions in the plan as the key fiduciary of the plan.

From understanding your plan thoroughly and ensuring it complies with the laws and regulations to submitting timely remittances of employee and employer contribution, don’t forget that you are ultimately responsible for this plan and making sure it is helping you to grow your retirement savings. Lastly, whether you are an employee needing to understand their retirement benefits or a business owner wanting to offer a retirement plan to your loyal employees, the professionals at 3 Financial can help. help you examine your plan to make sure it is designed to meet each client’s unique retirement needs. F We aim to provide you with the best possible comprehensive financial planning advice in Honolulu that is lined up with your unique business needs.  As a co-fiduciary, the professionals at 3 Financial will stand with you to share responsibility for managing and monitoring the plan so that you can focus on your business.

Contact us today to get started!

Joanna Amberger

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