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NAGDCA Notes

NAGDCA Note: A Guide to Plan Administration

Plan Administration deals with how plans are created and the structure of the services provided by the plan. Plans are created by plan sponsors within the legal framework by which they are governed, and plan sponsors also decide what services will be offered by the plan and whether or not they'll contract with other entities for certain parts of plan administration.

Plan Set-Up

Before setting up a plan, a plan sponsor must decide which type of plan to offer. Their options are 457(b), 401(k), and 403(b). Each of these plans are tax advantaged, providing for pre-tax or post-tax savings for contributors.

After deciding upon a plan type, the plan sponsor should draft the plan document, which describes the terms and conditions of the plan as they relate to operation and administration. This plan document should outline which optional features are being used within the plan, such as hardship withdrawals, and it would explain rules specific to the plan, such as payroll processing of contributions.

Plan Services

The plan sponsor should identify each area of service for the plan, such as recordkeeping, administration, communications, investments, and custodian/directed trustee. Some plans may choose for some or all services to be completed in-house, while others will choose to have some or all completed by a service provider or third party administrator.

Bundled and Unbundled Models

Bundled and unbundled refers to the administration and delivery of service categories. Bundled plans have an arrangement with just one service provider for all or more plan services, whereas unbundled plans involve plan sponsors partnering with more than one service provider for various plan services, sometimes called open architecture.

Contracted and In-House

Typically, plan sponsors provide services via in-house staff and some contracted service providers. In general, the more specialized the service, the more likely it will be cost-effective to outsource the service. If the service is involved with an operational environment unique to the plan sponsor, it would likely be more efficient to keep that service in-house.

Consultants

Consultants can assist the plan sponsor with the fiduciary oversight of the retirement plans offered. Consultants are available in the areas of investments, plan administration/regulation, communications, tax and legal, and auditing.

Role of Internal Revenue Service

The Internal Revenue Service can also provide support to the plan sponsor, both informally and formally, which may be costly and/or time-consuming. Given the potential costs and time needed, plan sponsors may choose to utilize service providers, in-house counsel, or contracted tax counsel instead of the IRS.

For more information on defined contribution plan administration, please consult NAGDCA's Best Practices Guide.

 

Published December 2013.

Neither NAGDCA, nor its employees or agents, nor members of its Executive Board, provide tax, financial, accounting or legal advice. This memorandum should not be construed as tax, financial, accounting or legal advice; it is provided solely for informational purposes. NAGDCA members, both government and industry, are urged to consult with their own attorneys and/or tax advisors about the issues addressed herein.

 
 
 


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