There are many roles and players within the defined contribution (DC) ecosphere. Managing 401(k) and 403(b) plans require hiring and partnering with outside parties to create and manage a plan. Perhaps the most intense activity within a DC plan is the role of a recordkeeper.
The DC recordkeeper will have the most prominent employee-facing exposure. The recordkeeper is essentially the bookkeeper of the plan. They track participant’s information such as account status, balances, contributions and all transactions within an account as well as other technical information about the plan. However, they do have limitations and are often misunderstood.
In addition, since many of the functions of a recordkeeper are technical in nature, there is much debate over whether the recordkeeping function can be handled more efficiently employing automated systems by so-called “robo-recordkeepers”.
Typical Recordkeeper Roles
- Process employee enrollment,
- Manage and tracks employee investments,
- Log and track contribution types (are these pre-tax contributions, Roth, employer pre-tax match, etc.),
- Generate 401(k) plan documents that the employer will need to deliver to employees — this includes how the plan is administered, benefits of a 401(k) plan, and specific plan features (eligibility, company match, etc.) Most recordkeepers will mail these to employees for a fee,
- Manage and record 401(k) loans and hardship withdrawals,
- Issue account statements to participants,
- Provide customer support
Roles Not Covered by Recordkeepers
- Give investment advice
- Help with plan design
- Sign the Form 5500
- Manage compliance work on the plan
- Employee education and on-boarding
How are recordkeepers paid?
Understanding recordkeeper fees can be confusing and have become the focus or regulatory scrutiny.
Recordkeeper fees can take one or more various forms such as an Asset-based fee, which is based on a percentage of total assets in the plan or a “platform fee” as a base fee and may include a per participant monthly fee.
These fees are typically paid by the employer directly and drawn from employee plan balances or indirectly from the fund investments (revenue-sharing). Recordkeeping fees are often the target of “hidden fees” complaints by regulators and participants.
According to blogger Esther Kim, recordkeepers are broken into 4 groups:
Types of Recordkeepers:
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Fund Companies: These are companies that manage investments but also have a side recordkeeping business. Some of the largest recordkeepers in the country primarily provide investment management services. These include: Fidelity, Vanguard, TIAA, MassMutual, and Schwab.
- Payroll Companies: While their payroll platform is their bread-and-butter, payroll companies will sometimes add on a 401(k) product to build on their value proposition. The 401(k) that’s offered by payroll companies will either be fully outsourced to different company and simply available on their platform or partially taken care of in-house with elements of the work outsourced to third-parties. Some payroll companies that have a 401(k) product on their platform include: ADP, Paychex, and Gusto.
- Insurance Companies: Kind of in the same boat as the fund companies, insurance companies sell their insurance products, investment products, and will also have a business segment that provides 401(k) recordkeeping services. These recordkeepers also make up some of the largest platforms in the country, including: Empower (a subsidiary of Great-West Annuity & Life Insurance), Voya (both an investment and insurance company), and Prudential.
Independent Recordkeeper: This company doesn’t sell funds, doesn’t sell insurance products, and doesn’t have additional payroll products. They are all in on supporting the backend of retirement plan administration work. These are the companies that hold deep 401(k) and retirement plan recordkeeping expertise, since this is all they do. But they’re typically paired with another 401(k) platform or service provider, since independent recordkeepers aren’t exactly known for their frontend customer experience.
