401(k) Recordkeeper: What They Do for Your Retirement Plan

February 21, 2020
5 min read
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We know HR helps to keep company-sponsored 401(k)s running smoothly, but there’s also a lot you should know about what’s happening “behind the scenes…”

There’s the investment advisor, Third Party Administrator (TPA), custodian, the 401(k) recordkeeper, and the list goes on. In this blog, we’ll take a deep dive into recordkeeping companies in the 401(k) industry, what they do, whether you need one, and what kinds of fees they charge. Arming yourself with this information will take you one step closer to finding the best 401(k) provider for the “behind the scenes” at your company.

According to PlanSponsor’s 2019 Recordkeeping Survey, 401(k) recordkeepers hold $4.9 trillion of American’s retirement savings on their platforms. So what exactly does a 401(k) recordkeeper do? What do they not do for you and your HR team? And what should you expect in fees?

Let’s talk about the 401(k) recordkeeper.

The 401(k) recordkeeper is essentially the bookkeeper of the 401(k) plan, hence the name. The job of the recordkeeper is to track who’s in the plan, what investments they own, and what money is going in or out.

They’re a fairly passive player typically — they don’t give advice, they don’t calculate whether you’re on track to pass the IRS nondiscrimination tests, and they don’t track whether the plan is meeting IRS requirements and staying compliant.

The role of the retirement plan recordkeeper has been ripe for disruption, with technology platforms being built to take over the work that had traditionally been done by humans.

According to Fred Barstein, founder and executive director of The Retirement Advisor University, “Sophisticated algorithms can easily handle ERISA because it’s rules-based. While recordkeeping is built on scale, that’s not the case for consulting. Emerging players will have a much harder time providing the handholding and consulting expertise of established companies, especially for smaller plans that lack resources.”

In short:

  • Robo-advisors can be more affordable, particularly for smaller businesses.
  • Robo-advisors can help avoid more 401(k) compliance mistakes with auto-checks and communications.
  • Robo-advising can be more scalable than traditional consulting.

Want to see this in action? Here’s Dave, ForUsAll’s award winning virtual advisor.

So what exactly does the recordkeeper do?

401(k) Recordkeeper (Keeps the records of “who” owns “what”)

Since the recordkeeper typically owns the main website where employees log in and payroll data is uploaded, this is likely the 401(k) player that your company’s employees are most familiar with. See some of what a recordkeeper can do below.

What does a 401(k) recordkeeper do?

  • Process employee enrollment
  • Manage and track employee investments
  • Log the origins of the contributions (are these pre-tax contributions, Roth, employer pre-tax match, etc.)
  • Manage and record 401(k) loans and hardship withdrawals
  • Issue account statements to participants
  • Provide customer support

What does a 401(k) recordkeeper NOT do?

  • Give investment advice
  • Help with plan design
  • Sign the Form 5500
  • Manage compliance work on the plan
  • Employee education and onboarding
  • Partner with you to meet your goals with the 401(k) plan
  • Focus on employee experience

As you can tell, at its most basic definition, a 401(k) recordkeeper is the retirement plan’s bookkeeper.

What fees does a 401(k) recordkeeper charge?

401(k) recordkeeping companies will generally either charge an asset-based fee, a platform fee that generally includes a base fee with an additional per participant monthly fee, or a combination of these two types of fees. Recordkeeping fees will be paid either by the employer, directly from the participant balances, or indirectly from mutual funds in the plan. If you don’t see recordkeeping fees documented clearly, then you’re not alone — recordkeeping fees are among the worst offenders on the list of “hidden fees” typically found in traditional 401(k) plans.

Curious how much your plan might cost on different recordkeepers? Use our price estimator tool to instantly compare fees across three of the best-known recordkeepers.

What are the different types of retirement plan recordkeepers?

  • Fund Companies: These are companies that manage investments but also have a side recordkeeping business. Some of the largest recordkeepers in the country primarily provide investment management services. These include: Fidelity, Vanguard, TIAA, MassMutual, and Schwab.
  • Payroll Companies: While their payroll platform is their bread-and-butter, payroll companies will sometimes add on a 401(k) product to build on their value proposition. The 401(k) that’s offered by payroll companies will either be fully outsourced to a different company and simply available on their platform or partially taken care of in-house with elements of the work outsourced to third-parties. Some payroll companies that have a 401(k) product on their platform include ADP, Paychex, and Gusto.
  • Insurance Companies: Kind of in the same boat as the fund companies, insurance companies sell their insurance products, investment products, and will also have a business segment that provides 401(k) recordkeeping services. These recordkeepers also make up some of the largest platforms in the country, including: Empower (a subsidiary of Great-West Annuity & Life Insurance), Voya (both an investment and insurance company), John Hancock, and Prudential.
  • Independent Recordkeeper: These companies don’t sell funds, don’t sell insurance products, and don’t have additional payroll products. They are all-in on supporting the backend of retirement plan administration work. These are the companies that hold deep 401(k) and retirement plan recordkeeping expertise, since this is all they do. But they’re typically paired with another 401(k) platform or service provider since independent recordkeepers aren’t exactly known for their front-end customer experience.

The role of the 401(k) recordkeeper is an important one. It’s where all of the transactions are accounted for, and serves as the source of truth for all employee activity in your company’s 401(k) plan. It also houses all plan documentation and tracks employee eligibility.

But it’s important to not confuse the role of the recordkeeper — that could lead to not hiring enough help, or thinking you hired an expert for a job that they won’t fulfill. The recordkeeper is not a replacement for an engaging onboarding experience. Nor is the recordkeeper your partner in ensuring your plan stays compliant. Nor does the recordkeeper provide investment advice or education. See our post on the Five Signs that You’re Working with the Wrong Recordkeeper to learn more.

Who are some popular small business 401(k) recordkeepers?

Every year PlanSponsor Magazine lists out the most popular 401(k) recordkeeping companies; the 2019 survey is here. The magazine categorizes plans into size by the total assets in the plan; those with less than $10 million in assets are more or less the “small business” plans. While these providers may be the most popular, they may not be the right ones for your company, so talk with an experienced advisor to find out which ones make sense for you!

Top providers serving plans under $10 million in assets

RankRecordkeeper# of Plans1Paychex84,3092American Funds55,3543ADP Retirement Services47,6864John Hancock45,2545Ascensus40,2766Principal30,6727Empower27,6318Transamerica23,7439Voya21,83010MassMutual20,716

Resources to compare retirement plan recordkeepers

For a closer look at more of the industry’s top players, check out the comprehensive overview of the top 401(k) providers –or top 403(b) providers for nonprofits. But in the meantime, if you want to know whether your current recordkeeper is right for you or want to learn more about how we work with recordkeepers, schedule time to chat.

Evaluating 401(K) providers? Download our insider checklist now.

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David Ramirez - CEO at ForUsAll
David Ramirez

About the author

David Ramirez, CFA, is a recognized 401(k) expert with over 20 years of experience in 401(k), ERISA, cash balance plans, and ESOPs. A UC Berkeley graduate, he played a pivotal role at Financial Engines, a 401(k) advisory firm founded by Nobel Laureate William Sharpe, Ph.D., where he was a portfolio manager who helped manage over $50B in 401(k) assets.  His clients included some of the largest Fortune 500 companies and state governments.

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This material has been prepared for informational and educational purposes only and should not be construed as a recommendation by ForUsAll, Inc., its affiliates or employees (collectively, “ForUsAll”)  to activate a cryptocurrency window or invest in crypto.  Investing in crypto can be risky and investors must be able to afford to lose their entire investment.  You should consult with your own advisers before activating a cryptocurrency window or investing in crypto.  ForUsAll does not provide legal, tax, or accounting advice. Please refer to your Plan's fee disclosure for more details.© 2023 ForUsAll, Inc. All rights reserved.
1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.