One of the best benefits that an employer can offer their employees is the option to contribute to a company sponsored retirement plan. When the employer either matches contributions to a certain limit or commits to profit sharing, employees are incentivized to start saving for retirement. As a financial advisor, I love to see it! We have worked with many small businesses that use retirement plans as a way to help educate their employees on saving for retirement and advocate for them to be proactive when it comes to their retirement savings and goals. Not only is it a great benefit, but retirement plans are becoming increasingly more common and some states are even mandating that companies implement them. If you want to read a little bit more about that, here is a blog post from last year about State-Mandated Retirement Plans.
One of the more complicated problems with having a retirement plan through work is figuring out who to contact when you have a problem or just a question. Who do you talk to if you want to increase the contribution taken from each paycheck? What if your plan offers the ability to make Roth contributions and you want to start contributing after-tax dollars, but you want to talk to someone who can explain what that means? What if you would like to make investment changes in your 401(k) but you want advice on what changes to make? These are all very common questions that come up when we are talking to clients in the retirement plans that we work with and with clients whose plans we do not work with. There are a few main parties involved with most retirement plans and their implementation and ongoing monitoring and maintenance.
The Plan Sponsor
The plan sponsor is the entity that decides to start a retirement plan which is the employer. Your employer sets up the retirement plan and curates the documents needed to put it in action. All decisions in regards to electable plan provisions and rules are determined by the employer. In example, the employer decides in a 401(k) plan how much they are matching contributions if they are at all. The plan sponsor also determines eligibility requirements as well as setting vesting schedules for the participants. One of the main jobs of the plan sponsor is selecting the service providers that will service the plan in accordance to the Plan documents. The question then is, when would you ever contact this entity? In the case of you being a participant of a plan, you would most likely never need to contact your plan sponsor in regards to the Retirement Plan. The plan sponsor doesn’t deal with giving investment advice or even the day-to-day maintenance of the plan. There are separate entities that are responsible for both of those issues, so if anything, your employer would point you to them.
The Plan Administrator
The plan administrator is the entity you would want to contact for most administrative tasks to do with your retirement account. The plan administrator would be the person to talk to about if you want to change the amount you are contributing to your paycheck. The plan administrator would be the entity to contact with questions about plan eligibility and if you are eligible to start contributing. The plan administrator would also be the contact if you are wondering if the plan allows for loans. The plan administrator is tasked with making sure that employee contributions and employer matching contributions are distributed to participant accounts at the time of each paycheck. So, if you have questions about your contributions not being in your account or are confused about your employer’s match, make sure you talk to the plan administrator. Many retirement plans will have online portal access where you can change contribution amounts and other information pertinent to your account. These online platforms are operated by the plan administrator. If you have a an old 401(k) at a previous employer and you have questions about how to access it, the plan administrator The plan administrator does not however deal in any case with participant investments or advice.
Most every 401(k) plan or other Qualified Retirement Plan have a designated Investment Fiduciary. The Investment Fiduciary to a plan often serves as a Financial Advisor to the plan. This advisor is able to give advice to the plan participants as long as that advice is for the best interest of the person receiving it. So, if you have any questions about how you should allocate your money or about the funds you are currently in, the Advisor to the plan is the best person to go to. This is the relationship that we often hold with retirement plans. We act as advisors to the plan in the sense that we can provide general plan-wide participant education as well as specific advice to participants. Participant education is very important so hopefully the plans you are in give you access to some sort of financial education information or they send out information regularly.
Being an investment fiduciary to a plan also usually involves the advising of the plan sponsor on the making of investment lineup decisions as well. The Advisor to a plan is trusted to provide best interest advice about investment lineup decisions on behalf of the participants. Your plan should have information about your Advisor readily available either online in your account portal, if you have one, or you can easily request that info from your employer. It is worth noting that not all 401(k) plans have an Advisor. The Plan Sponsor may have decided not to hire a Financial Advisor to be the investment fiduciary for the plan. Keep that in mind as a possibility when looking for who to contact.
All three of the parties I mentioned are fiduciaries which mean they are required to be working in your best interest. Starting a 401(k) plan is done by an employer to be for the benefit of the participants, their employees. So the plan sponsor, administrator, and advisor are readily available to help and serve you in regards to questions and issues with the plan. Hopefully this gives you a bit more info if you were unsure about who to contact with your retirement plan and when.
Thanks for reading and have a great weekend! (P.S., Go Blue! Beat MSU!)
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.