Frequently Asked Questions Regarding Employer 401k Recordkeeping

Q: Who can perform the recordkeeping services?

A: Recordkeeping services can be performed by various types of service providers. They can be performed in-house, by a third-party administrator, separate recordkeeping firm or bundled service provider. Essentially, in-house recordkeeping will be feasible only for larger employers. Many 401k third-party administrators perform recordkeeping and administrative duties, but most concentrate on 401k administration rather than recordkeeping. If a bundled service provider such as a mutual fund is used, a good recordkeeping system is frequently available. However, not all such funds will monitor participant-directed investments on an individual basis. If a bundled provider uses the services of another organization for recordkeeping, periodic checks should be made that it is performed properly. When selecting 401k recordkeepers it is important to examine the quality and extent of services they provide. This can be accomplished, to some extent, by requesting proposals and sample reports.

Q: What is required for 401k recordkeeping?

A: Meticulous 401k recordkeeping must reflect the various contributions to the 401(k) and the crediting of investment earnings and amounts distributed from it. Unless the company is very small, it is important that 401k recordkeeping be coordinated with the payroll system. Recordkeeping must monitor, separately, employee deferrals and after-tax voluntary contributions as well as employer matching, qualified non-elective and profit sharing contributions. Recordkeeping is considerably more complicated when participant-directed investments are available than when investments they are pooled.

Q: What are some choices regarding 401k plan recordkeeping?

A: It is usually not advisable to perform 401k recordkeeping in-house; third party recordkeeping firms specialize in this function. Mutual funds and insurance companies frequently provide this service.Third party administrators may not exhibit the necessary expertise if sophisticated recordkeeping is required.

Q: How can 401k recordkeeping costs be reduced?

A: It is important to negotiate recordkeeping fees when the 401k is established. Once the 401k has been created, employers can still frequently reduce recordkeeping fees by negotiating (since per unit costs should decrease with an increase in the number of participants), switching the recordkeeping function to another service provider (caution should be exercised since this may require switching all 401k functions to the new provider) or shifting recordkeeping costs to employees by having them deducted directly from the participants' accounts (this is obviously easier to accomplish when the 401k plan is established).

Q: Can I better monitor the 401k recordkeeping?

A: This may be difficult. A limited, periodic review by a consultant may be required.

401k Plan Further Assistance

If you have 401k questions or need assistance, please complete our short form. We will reply promptly to concerns of employers and their representatives. Or call us at 718-793-9885. Our web site home page contains additional useful information about 401k plans.


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