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

We know HR helps to keep company-sponsored 401(k) plans running smoothly, but there’s also a lot 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 recordkeeping fees they charge. This information will take you one step closer to finding the best 401(k) solution for your company.

What Is a 401(k) Recordkeeper?

A 401(k) recordkeeper is the bookkeeper of the 401(k) plan, hence the name. The recordkeeper tracks who’s in the plan, what investments they own, and what money is going in or out. The recordkeeper also typically owns the website employees use to access their 401(k) details.

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?

What does a 401(k) recordkeeper do?

According to PlanSponsor’s 2023 Recordkeeping Survey, 401(k) recordkeepers hold $9.8 trillion of American retirement savings on their platforms. So what exactly does a 401(k) recordkeeper do?

Generally, any recordkeeper performs these essential functions:

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

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 know the limitations of each recordkeeper. The recordkeeper is not a replacement for an engaging onboarding experience. Nor is the recordkeeper responsible for ensuring your plan stays compliant. Nor does the recordkeeper typically provide investment advice or education. See our post on the Five Signs that You’re Working with the Wrong Recordkeeper to learn more.

What does a 401(k) recordkeeper NOT do?

Generally, most recordkeepers will not:

• Give investment advice to employees
• Make plan design decisions
• Sign the Form 5500
• Take responsibility for day-to-day compliance work on the plan
• Take fiduciary responsibility for investment selection & monitoring
• Assume liability for ensuring contributions are timely and accurate
• Explain plan fees in a simple, easy to understand fashion

At its most basic definition, a 401(k) recordkeeper is the retirement plan’s bookkeeper.

What are the different types of retirement plan recordkeepers?

Fund companies

These are companies that manage investments but also offer recordkeeping services. Some of the largest recordkeepers in the country primarily provide investment management services. These include:

• Fidelity
• Vanguard
• TIAA
• Schwab

Payroll companies

Integrating 401(k)s with payroll is a huge time saver for employers. Not surprisingly, payroll companies sometimes add a 401(k) product to build on their value proposition. The 401(k) plan that payroll companies offer is typically either fully outsourced to a different company and simply available on their platform or managed partially 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
• Gusto

Insurance/investment companies

Some large 401(k) recordkeepers also offer insurance and other financial services. Examples include:

• Empower (a subsidiary of Great-West LifeCo)
• Voya Financial (financial, retirement, investment, insurance)
• John Hancock (insurance, investment, retirement)
• Prudential (insurance, investment, retirement, other financial products)

Independent recordkeepers

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, and they typically partner with another 401(k) platform or service provider that provides front-end customer experience.

What fees does a 401(k) recordkeeper charge?

Recordkeeping fees are unique to each provider — there is no standard pricing. 401(k) recordkeeping fees typically depend on the size of the plan and the services they offer. Common fee structures include:

• Asset-based fees
• Revenue sharing (part of mutual fund expense ratios paid to the RK)
• Individual service fees (generally charged to employee accounts)
• A flat fee with an additional per-participant monthly fee
• A combination of these types of fees

Recordkeeping fees may be paid by the employer, or deducted from participant balances or mutual funds in the plan. The Department of Labor has a great guide on 401(k) fees for a deeper dive.

Curious how much your plan might cost? See our pricing page.

‍Best Practices for Choosing the Right Recordkeeper

The role of the 401(k) recordkeeper is an important one. But it’s important to know exactly what services a recordkeeper offers before choosing one — you don’t want to hire an expert for a job they can’t fulfill.  

The DOL has created helpful tips on how to select a provider and published new cybersecurity best practices.

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. In the meantime, if you want to know whether your current recordkeeper is right for you, schedule time to chat.