The Duties and Responsibilities of a 457(b) or 401(a) Plan Administrator

by | Oct 22, 2020 | 401(a), 457(b) Plans, Investments, Plan Administration, Record Keeping

By Jeff Chang

A surprisingly large number of public employees accept appointment as the plan administrator, or a member of the administrative committee, for their agency’s 457(b) or 401(a) plan. An explanation of the typical duties and responsibilities of a plan administrator should help agencies and their staff better match available staff with the demands of the position.

A plan administrator is responsible for managing the day-to-day affairs of a 401(a) plan or 457(b) plan. Because these responsibilities are extensive and complex, most plan administrators hire consultants, investment advisers, recordkeepers, and attorneys to help them understand and fulfill the administrator’s obligations. In some cases, organizations split the administrator’s duties and responsibilities between those related to plan investments and those related to plan operations.

An appointed plan administrator, and members of an administrative committee, are all plan “fiduciaries.” As such, they are subject to strict constitutionally-mandated standards of care and potential personal liability for breach of their fiduciary duties. Because of these standards and potential liability, it is important for all fiduciaries to fully understand their duties and responsibilities, and to take their fiduciary appointments seriously.

As mentioned below, there may be options for reducing and mitigating potential fiduciary responsibility by hiring providers that can accept legal responsibility for some aspects of plan administration. However, if the provider is acting only in a “ministerial” capacity, or is merely making recommendations (perhaps as a co-fiduciary) for the plan administrator’s consideration, the ultimate responsibility and liability stays with the plan administrator. If you think your providers are taking responsibility for certain aspects of plan administration, it is critical to review your service agreements to confirm this.

When forming or re-constituting a plan administrative committee, it is important for the members to possess the necessary skills to address a wide range of issues and to be relatively available in instances where quick determinations are required. For example, while it may, in general, be adequate for an administrative committee to review plan investments on a quarterly basis, there are many administrative determinations relating to plan eligibility, plan benefits, plan policies and the plan’s terms that must be addressed on a real-time basis. Below are lists of responsibilities that we typically see listed under the headings plan investments and plan operations:

Plan Investments

  • If the plan provides, decide whether the plan will allow participants to direct the investment of their accounts.
  • Hire an investment adviser to assist in the evaluation of potential plan investments and with the investment education of participants.
  • Select and monitor the investment options (including the “default” investment) available under the plan (assuming it is participant-directed). Or, hire a section 3(38) adviser to select and monitor the investment menu in place of the committee (recommended).
  • Oversee and insure compliance with the notification, information, exercise of control, and disclosure requirements of Cal. Govt. Code section 53213.5 which are similar to the ERISA section 404(c) requirements.
  • Monitor and ensure that all fees paid from plan assets are reasonable and appropriate.
  • Oversee and evaluate whether participants are receiving adequate information and education to manage their account investments.

Plan Operations

  • Hire attorneys, accountants, consultants, custodians, and recordkeepers to assist with the administration of the plan.
  • If the plan provides, decide whether certain features (e.g., loans, hardships, participant-direction) will be made available.
  • Oversee eligibility for and the making of plan loans and hardship distributions that are allowed by the plan.
  • Oversee and monitor the preparation and use of plan policies (e.g., for loans, hardships, QDROs), election forms, beneficiary designations, and withdrawal or distribution forms.
  • Determine eligibility for plan participation, vesting, accrual of benefits, withdrawals and distributions.
  • Review and rule on claims for benefits and status of domestic relations orders.
  • Direct distributions of benefits.
  • Maintain, and provide (as appropriate) plan documents, plan summaries, plan reports, benefit records, vesting records, and participant information.
  • Interpret plan provisions, as necessary, to aid in plan administration.
  • Review and monitor actions and reports of plan providers for accuracy and compliance with plan terms.
  • Monitor and ensure that payroll deferral and employer contributions are made in accordance with plan and legal requirements.
  • Monitor and enforce limits on individual deferrals, catch-ups, annual allocations, loans, and hardships.

When selecting individuals to serve on an administrative committee, it is important to take into account the role or roles they will be serving (i.e., primarily investment-related, administration-related, or both), their knowledge of the plan and experience with human resources and/or payroll matters, and their overall accessibility. For these reasons, committees that are primarily tasked with administrative duties often consist of one to three staff members from the human resources and/or finance departments.

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