Why is it important to hire the right third party administrator?

• Drafting the plan document: It is the responsibility of the third party administrator to draft the plan document for the pension plan. The plan document will enlist all the provisions of the pension plan. The plan document should be a pre-approved document to save you the trouble of getting it approved. Read more about plan documents here.
• Gathering the census: The third party administrator needs to gather the census data for all plan participants. This includes the date of birth, date of hire, and the number of hours worked by each employee. The third party administrator uses this data to find out the eligible participants and provide appropriate notices to them. These participants need to decide if they want to contribute to their 401(k) portion and inform the plan sponsor about this.
  The plan sponsor will withhold the deferral amount from the participant’s paycheck and deposit it to their 401k accounts within a certain time frame.
• Administering Loans: The plan document may allow for participant loans and the third party administrator will generate a promissory note for the participants who want to take a loan. An amortization schedule needs to be generated and the person taking the loan needs to make a repayment as per the schedule.

• Processing distributions: Some contributions in the pension plan may be subject to a vesting schedule. The third party administrator will determine the vested percentage and provide a termination package for the terminated participants. These participants now need to elect how they want to take the distribution. They can either take a distribution which may be subject to a 10% penalty or they can roll over the money to their IRA or other retirement plan.
• Non-Discrimination Testing: This is the most important role of the third party administrator. The IRS allows a plan to discriminate in favor of certain participants, but within the prescribed limits. The third party administrator will test the average benefits of different groups of employees and make sure they are within IRS limits.
• Contribution Calculations: This is the second most important role of the third party administrator. They need to calculate the contributions to the pension plan based on the plan document and make sure these are in line with what was discussed when the plan was set up.
• Provide participant statements and inform vesting percentage: The plan administrator should inform the plan participants of their vesting percentage and make sure they are provided participant statements.
• Completing IRS Form 5500 filings: This is probably the third most important role of the third party administrator. These filings are due each year and there are significant penalties associated with not filing the Form 5500.

Whether you have a defined benefit plan or a 401k plan, the third party administrator is critical to your success. Make sure the third party administrator that is selected has the required experience for the plan you select. The third party administrator should have a dedicated plan consultant available throughout the year to consult with you as the business needs change. Feel free to reach out to us at info@pensiondeductions.com as we can provide you un-paralleled service and consulting.