As the plan administrator of an employee benefit plan, you need to understand the laws that govern these plans and your fiduciary responsibilities. As an employer, you’re a fiduciary, even if you hire third-party service providers to manage certain aspects of the plan. Your basic responsibilities include depositing contributions, ensuring fees are reasonable, and sharing information with plan participants.
In this post, we cover the responsibilities of plan sponsors. If an employee or internal committee manages your plan, they’re the plan administrators and should know this information too. Let’s dive in!
What are the 10 responsibilities of a plan administrator?
- Deposit employee contributions
- Hire and monitor service providers
- Pursue reasonable fees
- Provide information to participants
- Educate participants
- Know and avoid prohibited transactions
- Know the rules of investing in employer stock
- Keep participants and beneficiaries informed
- File Form 5500 with the federal government
- Find a replacement
Click any of the items listed above to jump to that section.
If your plan allows salary reductions from employee paychecks as plan contributions, you must deposit the contributions in the plan in a timely manner. Specifically, the contributions must be deposited as soon as administratively feasible. If you’re able to remit contributions within one or two business days, anything later than that is considered a late remittance.
The Department of Labor (DOL) states that contributions must be made no later than the 15th business day following payday. This isn’t a safe harbor. If you can make the contributions sooner, you must do so.
In addition, you must assign a fiduciary to make sure these contributions are successfully made to the plan.
Hiring service providers is a fiduciary responsibility. When you begin considering providers, you should provide identical and complete information about the plan to each prospective company. This allows you to collect and compare similar quotes.
Common third-party providers include lawyers, accounting/audit firms, insurance companies, trustees, custodians, investment managers, etc. Service providers should give you detailed information about the services they’ll provide and all compensation they’ll receive – both direct and indirect.
After receiving their quotes, ask yourself:
- Are there any conflicts of interest that may impact their performance?
- Is the compensation reasonable?
- Are the services adequate? Clear? Do they meet our needs?
- What qualifications or experience does the provider have?
- Is the company involved in any ongoing litigation? Has any litigation or enforcement action occurred in the past?
Document your selection process, the decisions made, and why.
Periodically reviewing your service providers is also important. You should have a regular and formal review process in place to evaluate your providers. This process will help you determine if changes are needed and if costs have increased. Make sure you outline when and how frequently you’ll review third-party providers.
When reviewing providers, consider the following:
- Notices about fee changes
- Whether the fees charged match the initial quote
- Reports issued
- Policies and practices
- Participant complaints
When you pay investment fees or service providers from plan assets, you should fully understand the expenses charged and services provided.
Sadly, there’s no set definition, range, or criteria for reasonable fees. When selecting plan investments, services, and providers, carefully evaluate your options and pay close attention to the fees. Do they bundle services? Will you pay for some services on an as-needed basis? Do you need all services offered? If you select certain funds, do you pay additional sales or charges? This should help you identify what is and isn’t reasonable.
As the plan administrator, you should know who or what pays for plan expenses. Plan expenses can be paid by the employer, the plan, or both. If the plan pays, expenses can be allocated to participants’ accounts. Your plan document should outline how fees are paid. If providers receive any compensation outside of what you pay, they need to share this information with you.
Do you offer a participant-directed plan – aka participants choose their investments and how to allocate funds? If you do, you must communicate their rights and responsibilities under the plan related to directing their investments. Before participants make their initial investment selections, you need to share a comparison of fund options, fees and expenses, and any other plan and investment-related information.
This fiduciary responsibility is based on helping participants make informed decisions about their investments. You should provide this information annually. You may rely on information provided by a service provider to satisfy this requirement.
Educating your participants about investments isn’t a fiduciary requirement. However, if you choose to hire a service provider to provide investment education, it’s a fiduciary action. See hiring a service provider above.
The advisor’s fiduciary responsibility is based on whether they share generic or specific information with participants. If they offer specific investment advice, they’re a fiduciary. If they provide generic investment information, they aren’t.
The Employee Retirement Income Security Act (ERISA) doesn’t allow certain transactions – aka prohibited transactions. Fiduciaries are prohibited from engaging in self-dealing activities and must avoid conflicts of interest that could hurt the plan and its participants.
Parties that can’t do business with the plan are called prohibited parties or parties in interest. Prohibited parties include employers, unions, plan fiduciaries, service providers, defined owners, officers, and relatives of prohibited parties.
Prohibited transactions include:
- A sale, exchange, or lease between the plan and a prohibited party
- Lending money or extending credit between the plan and a prohibited party
- Furnishing goods, services, or facilities between the plan and a prohibited party
An example of a prohibited transaction is the late remittance of employee contributions to the plan. It’s considered an interest-free loan from employees to the employer. You must report late remittances on Form 5500. And, late remittances could result in penalties.
Timely contributions are important. It’s the most common prohibited transaction we see as employee benefit plan auditors.
As the plan sponsor, you must protect the plan from bad actors. But, there are exceptions to these prohibited transactions, such as allowing participants to take loans and providing investment advice. You should know which transactions are and aren’t allowed.
If your plan invests in employer stock, there are specific and complex rules about these investments. Some plans have limits on stock and debt obligations. Others have no limits. You’ll need to monitor investment decisions and share information about the company’s financial condition with participants so they can make informed decisions.
ERISA requires plan administrators to distribute plan information to participants and beneficiaries. You can share information via paper or electronically. If you choose electronic communications, you must notify participants of this in advance. And, you need to take reasonable steps to protect participants’ personal information.
Here’s a list of plan documents you must share with participants and beneficiaries:
- Summary plan description
- Summary of material modification
- Individual benefit statement
- Automatic enrollment notice
- Summary annual report
- Blackout period notice
If you fail to provide this required information, you may be subject to penalties.
Plan administrators must file a Form 5500 Annual Return/Report. This form contains information about the plan and its operation. It’s collected by the DOL, IRS, and Pension Benefit Guaranty Corporation (PBGC). Then, it’s made public. Your filing requirements may vary, but if you fail to file this return, you’re subject to penalties.
What if you don’t want to be the plan administrator anymore? You can’t walk away. You have one more job – finding your replacement and making sure the new plan administrator can carry out these responsibilities. Why? So the plan can continue to operate and participants can interact with the plan.
If the plan administrator no longer wants to serve in this role or is unable to execute their duties because of termination, death, or illness, your company must find a new plan administrator.
If you read through this list and realize you’ve made mistakes operating your plan, the DOL has programs that allow you to voluntarily correct the violations. Learn about the correction programs here.
Plan administrators play a vital role in the success of benefit plans and participants’ retirement goals. It’s important that you know the job requirements and perform them to the best of your ability. Also, this list of 10 responsibilities is not all-inclusive. If you’d like to learn more, we recommend reviewing materials issued by the DOL’s Employee Benefits Security Administration agency and the AICPA.
Why? If you put little effort into this role, you could cause substantial problems for your company and colleagues. Worst case scenario: the DOL assesses fines. However, if you’re a great plan administrator, it’ll help streamline the plan’s audit, plan operations, and the annual filing of Form 5500.
- DOL | Meeting Your Fiduciary Responsibilities
- DOL | Tips for Selecting and Monitoring Service Providers for your Employee Benefit Plan
- AICPA | Plan Advisories
- DOL | Reporting and Disclosure Guide for Employee Benefit Plans
Have questions about your responsibilities as a plan administrator? Let’s talk!