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401k: The Recordkeeper

401k: The Recordkeeper

October 07, 2020
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The Role of the Recordkeeper 

Most people, at some point, have access to a 401k plan. As of 2017 nearly 60% of Americans were offered one through their employer. The average participant only sees a website and perhaps some hard-to-understand mailings throughout the year. As the plan sponsor you know there is much more to it than that. So, what all goes into offering a 401k? There are many moving pieces; Recordkeeper, TPA, Financial Advisor, Investment companies, perhaps some technology integrations, CPAs, audits, the list goes on. It's quite the maze of partnerships that need to work seamlessly to deliver the final product. Understanding the roles can help you build a more efficient and, in many cases, a more compliant 401k plan.  

Today we look at the Recordkeeper. What do they do? What do they not do? 

The Recordkeeper, as the name suggests, keeps the records of who is in, what they have, and how much. This means they enroll new participants into the plan, manage and track their investment selections and money source (pretax, Roth, or match), and issue statements. In most cases the Recordkeeper supplies the website that your employees will interface with. This can be anything from a basic website to a full suite of DIY financial tools and planning modules for participants. Perhaps somewhat surprisingly, the Recordkeeper's function does not go much beyond this. 

As a plan sponsor, it is more important to know what the Recordkeeper does not do. In many cases plan sponsors may falsely assume the Recordkeeper plays a more active role. First and foremost, the Recordkeeper is generally not a fiduciary. This means they are not bound to act in the best interest of the participants or to even act prudently, and this allows them to share less responsibility if there is a breach. There is a fine line they must walk in order to keep their coveted non-fiduciary status. They cannot exercise discretion or provide advice to the plan. What does this mean? For starters, they cannot provide investment advice to either your company or your employees. Also, even though they provide and maintain the plan document, they are not responsible for you adhering to their plan document. Additionally, they are not required to assess their fees for reasonableness. These are three of the most common fiduciary breaches a plan sponsor can make and you should not rely on the Recordkeeper for any guidance in these areas. When it comes to features you would like to offer or plan definitions such as the matching formula or total eligible compensation, the Recordkeeper is not a good resource either as this could be considered advice. A few other areas you'll need to turn elsewhere are employee engagement and education, compliance work, and, of course, signing off on IRS document 5500.  

It should be clear that the role of the Recordkeeper is much like a passive bookkeeper; they track what you have done. They do not tell you what you should or could be doing differently, they do not tell you where you may have made a misstep, and they certainly don't share the liability that you shoulder for offering the plan.  

The Recordkeeper is a vital piece to the retirement plan puzzle and my intent is not to diminish their importance. Instead, it's to help you set proper expectations so you are able to better evaluate who is the right Recordkeeper for your organization.