Most CPAs who serve small businesses touch the client’s 401(k) plan several times a year. You see the employer contributions on the return and the payroll files that feed the deferrals, and you may be the one who reminds the owner the Form 5500 is due. You are often the adviser the owner trusts most on money questions. That puts you in a good position to ask something most owners have never been asked: who is the Named Fiduciary of your plan?
I have worked with retirement plans since 1997, and most owners I ask answer with the name of a vendor. They mention the recordkeeper, the investment advisor or the third-party administrator, but the plan document usually names someone else.
Where the answer is written down
Section 402(a) of ERISA requires every plan to name one or more fiduciaries with authority to control and manage the operation and administration of the plan. In most small plans the adoption agreement names the employer. The same document usually names the employer as plan administrator under section 3(16), the role responsible for notices, eligibility, distributions, claims, records and the annual filing.
Confirming this with a client doesn’t take long. Start by asking for the signed adoption agreement and every executed amendment, not the summary plan description or a provider’s plan highlights. If the client doesn’t have them, the TPA will. How long they take to arrive tells you something about how the plan is governed.
Find the lines that name the Named Fiduciary and the plan administrator, and write down the exact words. In most small plans both say the company.
Compare that with the Form 5500. Line 3a identifies the plan administrator, and someone at the client signs the return as administrator under penalty of perjury. Many owners sign because the TPA sent the form for signature, without connecting the signature to the role it describes.
If the client believes a provider took over either role, ask for the written appointment and the provider’s signed acceptance. A service agreement that describes the provider’s work does not appoint it to a fiduciary role, and many TPA and recordkeeping agreements state plainly that the provider performs ministerial services at the employer’s direction and is not a fiduciary.
What can be outsourced and what can’t
Owners are right that much of the work can be handed off. A 3(38) investment manager can take discretionary responsibility for selecting and replacing the funds. A 3(21) advisor makes recommendations, and the employer still makes the decision. A provider can accept appointment as 3(16) plan administrator for the functions listed in its agreement, and an independent fiduciary can accept appointment as Named Fiduciary.
Some responsibility stays with the employer however the plan is set up. The employer has to select each provider prudently, monitor it, give it accurate information and decide whether the arrangement should continue. Monitoring is the duty I see skipped most often, and the Supreme Court treated it as a continuing duty in Tibble v. Edison International in 2015.
Accurate information is where a CPA can help the most. A provider working from a compensation file that doesn’t match the plan’s definition of compensation can produce results that look correct but don’t follow the plan’s terms. Late deferral deposits, missed eligibility dates and bonuses left out of plan compensation usually start in payroll data the employer controls, and that is data you already review.
Why the fees matter
For my book I reviewed 48,944 plan-year 2024 Form 5500 Schedule H filings. Schedule H is filed mostly by larger plans, so the sample skews toward bigger filers, and the smallest plans that file the short form are not in it. The spread is still wide. The median plan paid $162 per participant in administrative costs, or 27.0 basis points. Plans with 25 to 99 participants paid a median of $364 per participant, compared with $104 for plans with 500 or more. Among plans under 500 participants, 30.6% paid more than twice the median.
ERISA does not set a fee ceiling, and a plan can pay above the median for good reasons. The question a regulator or a plaintiff’s attorney asks is whether someone responsible reviewed the fees and recorded why they were reasonable. When the owner doesn’t know the responsibility is theirs, that review usually hasn’t happened.
Starting the conversation
You don’t need to become the plan’s fiduciary to help, and you shouldn’t take the role on informally. A few questions at a year-end meeting are enough. Who is named in the plan document? Has anyone accepted a fiduciary role in writing? Who reviews the providers and their fees, and when did that last happen? Was the review written down?
If the client can answer all four, the plan is probably in reasonable shape. If not, the next step is to name a person or committee in writing, set a review schedule and keep minutes. The plan’s ERISA counsel, advisor or TPA can help with the paperwork, and the client will have a record showing who is responsible and what they reviewed.
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Russell McNorton is founder and CEO of Admin316, an independent retirement plan fiduciary that accepts written appointment as ERISA §402(a) Named Fiduciary and §3(16) Plan Administrator, working alongside a plan’s advisor, recordkeeper and TPA. He has worked with retirement plans since 1997 and is the author of Who Is Your Named Fiduciary? The 401(k) Responsibility You Didn’t Know You Had, and What It’s Costing You. He can be reached at rmcnorton@admin316.com.
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Tags: 401k, 401k taxes, fiduciary, Income Taxes, Small Business
