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Employee Benefits

Setting Up and Administering a Retirement Plan

Along with the benefits of offering a retirement plan, such as a 401(k), come responsibilities. You must administer the plan and manage its assets correctly. This can create quite a bit of work and expense. It's important to research 401(k)s and other retirement plans thoroughly, ask questions about the features and responsibilities involved with each, and chose the best one for your company. It's also key to familiarize yourself with ERISA regulations and other laws that dictate your responsibilities as an employer in administering a retirement plan.

Qualified Retirement Plans Have Four Main Elements:

  1. A written document that outlines the benefits structure and describes day-to-day administering of the plan
  2. Creation of a trust fund to hold the plan's assets
  3. A recordkeeping system that tracks money going into and out of the plan
  4. Written plan information for participating employees and government agencies

What is a Fiduciary?

A 401(k) retirement plan must have a fiduciary--someone who acts on behalf of plan participants in accordance with a strict standard of conduct. This person must be well versed in regulations and laws regarding retirement plans, must be able to interpret and follow written plan documentation, and must make decisions regarding the plan and its investments. Fiduciaries also minimize risk and investment losses to the plan.

You may choose a third-party service provider to administer your retirement plan and act as fiduciary, or you may manage its daily operations internally if you have a human resources department with employees dedicated to plan administration. You can also set up your 401(k) or other retirement plan to give your employees control over their own accounts and investment decisions.

Each of these choices comes with its own set of requirements. For example, if you decide to hire a third-party administrator to oversee your retirement plan, you must ensure that administrator is properly bonded, clear about their responsibilities, and able to make the right decisions on your company's behalf. On the other hand, if you empower employees to make their own investment decisions, you must find ways to educate them about their investment fund options. Plus, you need to find out the service charges, fees, and other costs associated with each plan administration option and decide which best suits your budget.

How you set up your 401(k) or other retirement plan affects your liability as a business owner for the investment losses the plan may experience, as well as the time and money you will spend administering the plan. Research plans and options carefully to choose the right level of responsibility and liability for your particular business.

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First Commonwealth Bank and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.