When setting up a 401(k) plan, it's important to understand the roles and responsibilities of various providers involved in the process. Below is a summary of the key players and their responsibilities.
Summary of Roles
Provider | Key Responsibilities |
Plan Sponsor (Employer) | Provides this important benefit to their employees to attract and retain talent; selects providers; oversees administration; holds fiduciary responsibility. |
Financial Advisor | Educate on plan design and investment options; provides ongoing support and employee education. |
Aboon: Third-Party Administrator (TPA) | Designs the plan based on the employer’s goals; prepares plan documents; conducts compliance testing and annual reporting. |
Recordkeeper | Manages participant accounts; processes and tracks transactions; provides statements; offers tools to the employees in the plan. |
1. Plan Sponsor (Employer)
The plan sponsor is typically the business owner or the business itself. They are responsible for:
Initiating and Maintaining the Plan: Deciding to offer a 401(k) plan, selecting the type of plan, and maintaining it.
Selecting Providers: Choosing the service providers who will assist in managing and administering the plan.
Plan Administration: Overseeing the administration of the plan, including payroll deduction management, contributions and compliance.
Fiduciary Responsibility: Acting in the best interest of the plan participants and ensuring the plan is run prudently.
2. Financial Advisor
The financial advisor helps the plan sponsor by:
Plan Design Consultation: Working with the employer and TPA on the type of 401(k) plan that best suits the business’s needs.
Investment Options: Recommending investment options to be included in the plan’s lineup.
Employee Education: Educating employees about the plan benefits and investment choices.
Ongoing Support: Providing ongoing support and advice to ensure the plan remains competitive and compliant.
3. Aboon: Your Third-Party Administrator (TPA)
The TPA plays a crucial role in the technical administration of the plan by:
Plan Design: Recommending and advising on the plan design options that best suit the employer’s needs.
Plan Document Preparation: Drafting plan documents that meet the employer’s needs while complying with IRS and Department of Labor regulations.
Compliance Testing: Conducting required non-discrimination tests to ensure the plan does not unfairly favor highly compensated employees.
Annual Reporting: Preparing necessary reports and filings, such as Form 5500.
Ongoing Support: Working with the employer and financial advisor on improvements to the plan design as the plan grows and evolves, as well as advising on corrective approaches when needed.
4. Recordkeeper
The recordkeeper manages the data and transactions for the 401(k) plan and provides the platform for employee engagement, while also:
Recordkeeping: Maintaining detailed records of contributions, distributions, and plan activities.
Account Management: Tracking individual participant account balances, contributions, and investment performance.
Transaction Processing: Handling day-to-day operations, including contributions, loans, and distributions.
Participant Statements: Providing regular account statements to participants.
Website and Tools: Offering online access and tools for participants to manage their accounts.
401(k) Plan Setup Checklist
Task | Plan Sponsor (Employer) | Financial Advisor | Recordkeeper | Aboon: Third-Party Administrator (TPA) |
Plan Design and Initial Setup |
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Define plan objectives and goals | ✓ |
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Consult on plan type (e.g., traditional, safe harbor) |
| ✓ |
| ✓ |
Decide on plan type (e.g., traditional, safe harbor) | ✓ |
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Educate on plan features (e.g., matching, vesting) |
| ✓ |
| ✓ |
Choose plan features (e.g., matching, vesting) | ✓ |
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Recommend plan providers |
| ✓ |
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Select plan providers | ✓ |
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Draft plan documents |
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|
| ✓ |
Establish a plan committee (if applicable) | ✓ |
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Compliance and Legal Requirements |
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Ensure plan compliance with ERISA and IRS rules | ✓ |
|
| ✓ |
Obtain an ERISA attorney if necessary | ✓ |
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Obtain an ERISA fidelity bond | ✓ |
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Prepare and timely execute plan documents | ✓ |
|
| ✓ |
Provider and Participant Setup |
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Set up plan account with recordkeeper and custodian | ✓ | ✓ | ✓ | ✓ |
Coordinate with payroll provider for contributions | ✓ |
| ✓ |
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Enroll employees and gather participant information | ✓ | ✓ | ✓ |
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Provide participant education and enrollment materials |
| ✓ | ✓ |
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Investment and Financial Management |
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Recommend investment options for the plan |
| ✓ |
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Select investment options for the plan | ✓ |
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Set up participant investment elections |
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| ✓ |
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Establish and communicate the default investment option | ✓ |
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Monitor and review investment performance | ✓ | ✓ |
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Administrative Setup and Communication |
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Set up plan administration and recordkeeping systems |
|
| ✓ | ✓ |
Develop and distribute summary plan description (SPD) | ✓ |
|
| ✓ |
Provide ongoing participant communications |
| ✓ | ✓ |
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Establish procedures for handling loans and distributions | ✓ |
| ✓ | ✓ |
Ongoing Management and Maintenance |
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Schedule regular plan reviews and updates | ✓ | ✓ | ✓ | ✓ |
Conduct annual compliance testing | ✓ |
|
| ✓ |
Prepare and file annual Form 5500 | ✓ |
|
| ✓ |
Educate on fiduciary responsibilities and compliance |
| ✓ |
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Monitor fiduciary responsibilities and compliance | ✓ |
|
| ✓ |
Provide ongoing education to participants |
| ✓ | ✓ |
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Provide participant call center and website |
|
| ✓ |
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Respond to participant inquiries and issues |
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| ✓ |
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