A typical 401(k) plan may have a TPA, recordkeeper, financial advisor, payroll provider, accountant, investment manager, and ERISA attorney.<\/p>\n
That\u2019s a lot of cooks in the kitchen.<\/p>\n
The problem isn\u2019t having multiple providers. Each provider can play an important role.<\/p>\n
The problem is when the plan sponsor assumes that somebody else is handling something when nobody actually is.<\/p>\n
The TPA thinks payroll is handling it. Payroll thinks the recordkeeper is handling it. The recordkeeper thinks it\u2019s the TPA\u2019s responsibility. Meanwhile, the financial advisor assumes everyone else has it covered.<\/p>\n
Then a deadline gets missed.<\/p>\n
One of the biggest mistakes plan sponsors make is failing to understand exactly what each provider does and, more importantly, what they don\u2019t do.<\/p>\n
Service agreements matter. Engagement letters matter. Understanding the division of responsibilities matters.<\/p>\n
Just because you hired several competent providers doesn\u2019t mean every responsibility has been assigned to someone.<\/p>\n
There can also be overlap. Two providers may believe they\u2019re responsible for the same task, while another important task belongs to nobody.<\/p>\n
Ultimately, the plan sponsor remains responsible for overseeing the plan. You can\u2019t simply assemble a group of providers and assume they\u2019ll coordinate everything among themselves.<\/p>\n
That\u2019s why I believe every plan sponsor should periodically sit down with their providers and review responsibilities.<\/p>\n
Who handles eligibility? Who calculates contributions? Who prepares notices? Who monitors deposits? Who handles distributions and loans? Who is responsible for government filings?<\/p>\n
Get the answers before there\u2019s a problem.<\/p>\n
Having several cooks in the kitchen can produce a great meal when everyone knows their job.<\/p>\n
When they don\u2019t, somebody eventually burns dinner.<\/p>\n
With a 401(k) plan, that burned dinner can become a costly compliance problem.<\/p>\n
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