You can hire an independent ERISA 3(16) administrator to handle a wide range of employee benefit plan administrative duties. The administrator can assume some, but not all, 3(16) fiduciary responsibilities.
However, there are certain duties that you as the plan sponsor must retain. These include the following:
1. Timely remittance of employee deferral contributions. Each pay period, you must remit deferral contributions withheld from employees’ paychecks in a timely manner. This is defined as, “as soon as amounts can be reasonably segregated from the company’s general assets, but no later than the 15th business day of the month following the pay date.”
You should determine the number of business days it takes to process remittances and stick with this each pay period. Given the automated nature of the process, many plans are expected to remit contributions within a day or two of withholding.
2. Reconciliation of deferral contributions remitted each pay period with Form W-3. At the end of each year, total remitted contributions should equal total deferrals on your company’s W-2 summary (or Form W-3). Investigate and reconcile any discrepancies. Report any late or missed contributions, and remit them as soon as possible.
3. Correct calculation of eligible compensation as defined by the plan. Eligible compensation is defined in the plan document and adoption agreement. Make sure you understand your plan’s definition and educate payroll and HR personnel about the importance of adhering to it. Also monitor any changes in your payroll systems for proper coding.
4. Deduction of proper deferral amounts from paychecks. You are responsible for ensuring that employee elections for 401(k) deferrals are properly withheld from their paychecks.
Assign specific personnel to receive election forms or feedback information from the plan’s recordkeeper and update payroll data in a timely manner. It’s usually a good idea to have a second employee review election changes for accuracy.
5. Compilation of timely and accurate census data. The plan is required to complete non-discrimination testing each year using census data for all employees with wages during the year. While the testing is typically performed by the plan’s recordkeeper, the sponsor must ensure that demographic data (e.g., birth, hire and termination dates), gross compensation, number of hours worked, and employee and employer contributions are accurate.
Meanwhile, you should compile and remit census data to the plan’s recordkeeper no later than mid-February each year for calendar plan years.
6. Administration of participant loans. When participants make loans from the plan, you are notified of the amount and repayment terms. You can then set up repayments via payroll deductions in your payroll system.
Make sure that deductions for repayments begin and end in accordance with the loan terms and that employee deferrals are stopped for six months in accordance with the plan’s loan policy. Given their importance, you should designate a responsible employee or committee to oversee and monitor these activities.