Setting up a 401(k) retirement: Who does what?

September 15, 2021

Establishing a 401(k) retirement plan is simple. After all, you just have to choose vendors, draft legally sound documents, operate the plan, and stay in compliance. No big deal, right?

Actually… not so much. Setting up a 401(k) plan involves many moving pieces and, of course, quite a few people. That means decisions made when setting up the plan often have long-term consequences (and potential costs) down the road. While it may save time up-front to simply assign warm bodies to fill each role, these decisions of convenience may come back to haunt you down the road, when specialized attention is needed.

Read on to learn who’s involved and who does what when establishing a retirement plan.

Who’s behind a well-run plan?

Like any well-run business, an effective plan depends on multiple people who work to keep things running smoothly. Choosing these players wisely is key, and that means thoughtful decision-making when setting up a plan.

Vetting service providers and understanding what they will — and won’t — do is crucial. For instance, when choosing a plan, a salesperson may imply that they’ll handle any future audits for you.

In reality, at the end of the day, the plan sponsor is the responsible party… regardless of how much they delegate to third party administrators (TPAs) and service providers. 

Understanding these responsibilities is essential to avoid unpleasant future surprises and potential costs.

Let’s look at the key players in plan establishment and operation.

Plan Sponsor

The plan sponsor is, you guessed it, the employer that establishes the plan and offers it to their employees. They’re responsible for:

  • naming a fiduciary or choosing a third party plan administrator
  • ensuring compliance with regulations and laws
  • remitting employee and employer contributions
  • reporting contributions on W-2s

These are important jobs, and employers must carefully consider who to assign to manage plan-related tasks in-house. 

Third Party Plan Administrator

The third party plan administrator is responsible for day-to-day management, according to plan documents. Along with executing plan activities, the TPA must:

  • ensure ERISA compliance
  • manage documents and keep records
  • monitor strategy and investment performance
  • perform compliance testing
  • prepare and issue Form 1099-R and Form 5500

Choosing a TPA is key to plan success, so vet options carefully. This isn’t the time to rely on someone’s cousin’s old roommate who dabbles in financial advising on the side. 

When choosing a TPA, look for a company that:

  • has significant experience in the TPA role
  • doesn’t charge excessive administrative fees; often, a flat-fee structure is most economical
  • has ERISA and tax attorneys on staff
  • monitors the financial advisor and custodian’s activities
  • assumes ERISA 3(16) fiduciary duties

Plan Participants

Plan participants — the employees who opt into the plan —  choose from available investment options. They also provide the plan administrator with updated information, and review plan statements.


The custodian, or trustee, is responsible for safeguarding plan assets and participants, allocating earnings (and losses), and investing assets as directed. The custodian may be a company employee, or may be a third party provider. Either way, they must be a fiduciary that acts in the best interests of plan participants. 

If you choose a third-party provider as custodian, research their reputation and experience in the field. Look for custodians that:

  • have SPIC and additional insurance coverage
  • distribute statements to plan participants on a regular basis
  • have written policies and procedures to monitor financial advisor and TPA activities

Financial Advisor

A financial advisor provides investment recommendations and diversification strategies. This role may be filled by the Third Party Administrator, but in most cases, it’s best to use separate providers . 

When choosing a financial advisor, look for Registered Investment Advisors; RIAs are held to fiduciary standards and must act in the plan participants’ best interest. In contrast, brokers or insurance agents act in the best interest of their employer and/or may work on commission. Look for an RIA with a Series 65 license.

If the financial advisor is a 3(38) fiduciary, they take on some legal liability for investments. This can reduce your company’s liability.


A plan auditor reviews plan documents and its operations, and ensures that the plan stays in compliance. Depending on the size of your plan, you may be required to hire an outside auditor, like Cassell Plan Audits.

Still aren’t sure you’ve chosen the right people for your company’s 401(k) plan? Cassell Plan Audits is here to help! Contact us at 630.886.7669 for more information and to schedule your virtual appointment.

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