Plan Administration: What’s Required to Set Up and Manage a 401(k) Retirement Plan

The Employee Retirement Income Security Act of 1974, as amended, (“ERISA”)  serves as the regulatory framework that employers must comply with in order to protect the interests of their employees in creating and administering their retirement plans. An employer offering a retirement plan is called the plan sponsor and as such, under ERISA, there are three main categories the retirement plan fiduciary duties fall into: 

Selecting and Managing Investment Options

One of the first steps in offering a new retirement plan is determining what investment options to include. This entails selecting the investment types, assessing risk profiles, and ensuring the funds are diverse enough to meet ERISA regulations. Once the options are selected, they will need to be monitored to make sure that their performance continues to meet plan requirements.

Employers can choose to take on varying levels of responsibility for this work – managing it all themselves, making selections with advice from a financial professional, or assigning all of the selection duties to an investment manager. As in all the categories, the employer’s fiduciary duty at minimum is to stay informed of plan requirements and any regulatory requirement updates.

Creating and Administering the Plan

Once a plan is created, many of the administrative tasks can be handled by someone within your organization. A well-drafted plan spells out what activities the individual can and should perform. These duties can include enrolling employees, integrating contributions with payroll, making distributions, year-end reporting, and the like. There are instances in which the tasks to be performed here will require more oversight, for example, when the action requires interpretation of ERISA requirements.

Employee Engagement and Participation

For a 401(k) plan to be successful, employees must engage and contribute funds to their retirement account. And for them to do so, they must have enough information about the plan to understand how the plan works, the benefits of saving in the plan, their investment options, their account holdings, and more.

ERISA has certain mandatory communication minimums, such as providing accurate representations of the plan holdings and issuing regular updates to participants about plan performance. As the plan sponsor, your obligation is to make sure all necessary communications are administered in a timely fashion, and that employees have access to the information and resources they need to make prudent decisions about their retirement savings meeting them at all stages of their retirement journey.

Selecting a Plan Provider

401(k) plan administration can be a full-time job. From plan design to investment management and employee engagement, there’s much to consider. However, you don’t have to do it alone. It is common for plan sponors to delegate some of these duties to service providers. When evaluating providers for your retirement plan, these questions may help you understand exactly how they can help with administrative requirements:

• How are plan investments selected?
• Am I responsible for selecting the investments?
• How often are plan investments reviewed?
• Do you integrate with payroll?
• How often will you meet with my company to review the plan performance?
• What is your year-end reporting process?
• How do you streamline the plan set-up process?
• Can you help me find a recordkeeper to handle the plan administration?
• What do I have to do after the plan is set up?
• How do you help with employee enrollment?
• What type of education about retirement planning can you offer to my employees?

Your Morgan Stanley Financial Advisor can help build a solution designed to streamline the work of creating and managing a retirement plan that can help your employees reach their desired outcomes. As with any major decision of this type, we recommend you consult your legal and tax advisors as part of the process.