Blog
March 1, 2018
What Exactly Does a Recordkeeper Do?
In Robert Gorelick’s book, America’s Retirement Plan, Chapter 3 discusses parties to the Plan. There are a lot of different parties to the plan known as service providers. They work behind the scenes to help manage a 401(k) plan. There’s the Investment Advisor, Third Party Administrator (Benefit Equity, Inc.), mutual fund companies, and a recordkeeper, (insurance company or investment company).
According to PlanSponsor Magazine’s 2016 Recordkeeping Survey, 401(k) recordkeepers hold $4.2 trillion of American’s retirement savings. We also refer to them as the recordkeeping platform.
So what exactly does a 401(k) recordkeeper do? And just as important, what don’t they do?
The 401(k) record-keeper is the investment custodian who buys and sells the mutual funds as directed by plan participant’s. In this role they account for the buying and selling of the funds, the contributions to the plan and the distributions to terminated employees. They are the bookkeeper for 401(k) plan. They also provide enrollment materials, participant disclosures, online access of account information and retirement planning tutorials.
They don’t give advice, they don’t help with non-discrimination testing or other governmental requirements, and they don’t do the plan tax return. They do not audit the data you send them. If you send wrong data, they are not responsible for a participant’s account not being credited correctly. They take the information as presented and record it.
The role of the recordkeeper has become very automated. On the other hand, one of the roles of the Third Party Administrator is to review what the Employer has instructed the recordkeeper to do. Small employers do not have staff to review recordkeeper reports. Large corporations have employee benefit departments to work with their recordkeeper.
What does a 401(k) recordkeeper do?
- Manage and account for employee investments
- Make all buys and sells of the mutual funds
- Record the origins or sources of the contributions**
- Generate employee plan disclosures that the employer can deliver to employees. Most record-keepers will mail these to employees for a fee.
- Record 401(k) participant loans
- Mail participant account statements
- Process employee enrollment
- Provide a service center for customer support
**There are numerous processes to review for compliance. For example, a 401(k) plan has several origins or sources for the money: employee deferrals, employer contributions such as matching or profit sharing, rollovers, loans, forfeiture account, Roth, distributions, etc. It is not uncommon for money to be transferred by the employer to the wrong source. One fat thumb on a keyboard puts a pre-tax deferral into a matching account or after tax deferral, oops!
What doesn’t a 401(k) record-keeper do?
- Give investment advice
- Help with plan design
- Prepare or sign the Form 5500
- Manage government compliance
- Partner with you to meet your goals with the plan
BEI in conjunction with financial advisors are constantly benchmarking and reviewing recordkeepers. If you want to know whether your current recordkeeper is right for you or want to learn more about how we work with recordkeepers, email us at clong@benefitequity.com or call 800-899-9141.
Author: Robert Gorelick, APA Benefit Equity Inc.
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