Here are some FAQs to review which plans are covered by the PBGC and the owner-only exemption. The next article in our series will address the professional employer exemption.
It is important to understand how any service provider to the 401(k) plan gets paid. Ideally, each and every 401(k) provider would proactively disclose any indirect compensation, and there are fee disclosure regulations effective later this year that will require this. But, if a 401(k) third party administrator (‘TPA’) does not volunteer this information, a business owner should directly ask. It is best to ask the TPA directly and not filter the question through the financial advisor.
A financial advisor goes out to a small business owner and presents three options for a 401(k) record-keeper. He talks about each of the record-keeper’s due diligence on the funds, the investment fees, the enrollment material, and the website. There is a lengthy and robust discussion about the pros and cons of each record-keeper. At some point in the process, the financial advisor explains that a third party administrator (TPA) will do the plan document, Form 5500/Form 5500-SF, and the IRS-required nondiscrimination testing. Usually the time spent on the choice of TPA is minimal, but sometimes a representative of the TPA attends the meeting.