Go beyond a basic 401(k)

Go beyond a basic 401(k)

Give your employees more than just a 401(k), join the movement.


401(k) Recordkeepers: 5 Signs You’re Working with the Wrong Recordkeeper

October 25, 2016
4 min read
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The 401(k) recordkeeper is essentially the bookkeeper of the 401(k) plan. The job of the recordkeeper revolves around key administrative duties, such as tracking who’s in the plan, what investments they own, and what money is going in or out. They manage daily operations like processing enrollments, tracking and handling investment elections, contributions and payouts as well as producing plan statements for employees. It’s likely that your participants log into your recordkeeper’s website to monitor and choose their investments, and if you don’t have payroll integration your team will probably log into the recordkeeper’s administration portal to make employee election changes.

While your recordkeeper works in the background to support your plan, the role of the recordkeeper is a critical one and supports many building blocks to your plan and gives you and your participants the freedom to access your money easily.

As the plan sponsor, you should be confident in your recordkeeper partner and understand their responsibilities. Practically speaking, the same tasks the recordkeeper completes on your plan are the very ones that are highly regulated and structured by the Department of Labor and IRS. And the government continues to aggressively audit plans to help plan sponsors keep their plan on track and protect 401(k) plans. According to Forbes (emphasis added):

If your company’s 401K plan hasn’t been audited by the government yet, you won’t have to wait long—the DOL brought on nearly 1000 new hires.  Their role is to enforce ERISA rules by serving as watchdogs and issuing government fines (or worse) to offending employers.  An estimated 88 individuals, including: plan officials, corporate officers, and service providers were criminally indicted for offenses related to their benefit plans, according to the DOL.  It’s important to note plan sponsors (that’s every employer!) will assume fiduciary responsibility.  When the government’s rules are not met, substantial fines can accrue.  Last year’s average, as reported by the DOL, was $600,000 per plan—an increase of almost $150K in the past 4 years alone.

For a quick check on whether you have the right recordkeeper for your plan, look out for these signs that your 401(k) recordkeeper platform may have some serious cracks in it.

5 Signs You Chose the Wrong 401(k) Recordkeeper

  1. Your recordkeeper is unable to show they’ve been profitable through their recordkeeping platform. The role of the recordkeeper is unique in that they ultimately give you and your employees access to the actual funds in the account. If your recordkeeper’s platform is new and still being built out, then there is no guarantee that this part of the business won’t fold — leaving the money in everyone’s 401(k) accounts stranded and difficult to access. For example, what happens if your recordkeeper goes under and your employee needs a hardship withdrawal, how will they access their money? Secondly, if your recordkeeper can no longer sustain their platform, who will step in to honor employee requests for their 401(k) plan?
  2. Your recordkeeper is using you as a guinea pig to test features that directly affect employees’ 401(k) accounts. If the product is still being developed, there’s a real chance that you will see errors in your 401(k) plan with broken payroll withholdings and insufficient communication to correct those errors in time. Major technical changes by new recordkeepers have resulted in real problems – problems that fall into the plan sponsors’ laps and have resulted in compliance errors that made it all the way to the Department of Labor.
  3. Your recordkeeper and your plan advisor are one and the same company. Because of the temptation of filling the plan with funds with revenue sharing (kickbacks between a 401(k) advisor and the recordkeeper), many plan sponsors keep their 401(k) advisor and recordkeeper platform separate. Scrutinizing the relationship between a 401(k) advisor and recordkeeper is in line with fulfilling the plan sponsor’s fiduciary responsibility and acting in the best interest of their employees. In fact, one of the biggest 401(k) lawsuit settlements came to light after revenue sharing fees between the funds and recordkeeper were exposed to employees.
  4. Your recordkeeper has under $1 billion in assets. In the recordkeeping industry, with the largest 401(k) recordkeeper in the country holding $1.7 trillion on their platform, that $1 billion mark shows that the recordkeeper has entered a new stage of maturity and adulthood. Because the work a recordkeeper handles is both compliance, technology, and policy heavy, you don’t want your plan in the hands of a recordkeeper who is still learning the business and working through mistakes that inevitably come up on a new platform. And unfortunately, because you are likely the fiduciary on the plan, mistakes your recordkeeper makes may very well end up on your plate to carry and own up to before the Department of Labor and IRS.
  5. Your recordkeeper is less than 8 years old. If your recordkeeping platform was built in the past few years, then you are now putting your money on a platform has yet to be tested against what was the largest collapse of the financial markets and hit to retirement plans in this century — the Great Recession in 2008. When a market takes a hit like that, causing widespread instability in 401(k) plans, your recordkeeper will be hit with requests and work at a volume they have never seen before. They may even decide to restrict trading during market turmoil. Choosing to keep your money safe in a platform that has weathered major crises is both a wise and prudent choice as a plan sponsor and fiduciary.

The good news is that there are a number of solid 401(k) recordkeepers. When it comes time for you to analyze your options, in addition to analyzing the option’s profitability, stability, technical maturity and experience you’ll want to consider the employee experience, how the company handles routine administrative work, their compliance record and support, the cost, and their investment selection.

A good 401(k) advisor can help you find a responsible recordkeeping partner for your business’ retirement plan. They can also act as an investment and administrative fiduciary.

Go beyond a basic 401(k)
Go beyond a basic 401(k)

Give your employees more than just a 401(k), join the movement.

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David Ramirez - CEO at ForUsAll
Healy Jones

Go beyond a basic 401(k)

Give your employees more than just a 401(k), join the movement.

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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.