As an employer sponsoring a 401(k) plan, you work with several service providers to help keep the plan running smoothly. Two of the most important are the third-party administrator, often called the TPA, and the recordkeeper.
The distinction between these roles can sometimes be confusing because both are involved in plan operations. However, they generally serve different functions. Understanding the distinction can help you ask better questions, reduce administrative errors, and make sure your retirement plan is being managed effectively.
What Does the Recordkeeper Do?
The recordkeeper is typically responsible for maintaining participant-level account information. In practical terms, the recordkeeper tracks the money going into and out of each employee’s 401(k) account.
This usually includes:
- Participant account balances
- Employee deferral elections
- Investment selections
- Contributions and distributions
- Loan and withdrawal processing
- Participant website access
- Quarterly statements
- Required participant notices and disclosures, depending on the service arrangement
The recordkeeper is often the provider employees interact with most directly. When an employee logs in to check their balance, change investments, increase contributions, request a loan, or update a beneficiary, they are usually using the recordkeeper’s platform.
What Does the TPA Do?
The TPA is generally focused on the technical administration and compliance side of the plan. While the recordkeeper tracks participant accounts, the TPA helps ensure the plan is operating according to the plan document and applicable retirement plan rules.
A TPA may assist with:
- Plan document support
- Eligibility calculations
- Employer contribution allocations
- Nondiscrimination testing
- Top-heavy testing
- Form 5500 preparation
- Year-end census review
- Compliance corrections
- Plan amendments
- Controlled group and ownership questions
The TPA’s work is often less visible to employees but highly important for the employer. A strong TPA can help identify issues before they become costly errors.
Why The Distinction Matters
Many 401(k) problems occur when responsibilities are unclear. For example, an employer may assume the recordkeeper is confirming employee eligibility, while the recordkeeper may assume the employer or TPA is responsible. Similarly, payroll may calculate compensation one way, while the plan document defines eligible compensation differently.
These gaps can lead to issues such as:
- Missed employee eligibility
- Incorrect employer match calculations
- Late or inaccurate contributions
- Failed compliance testing
- Incorrect compensation used for contributions
- Plan operations that do not match the written plan document
Understanding who does what helps employers create a cleaner process and avoid unnecessary surprises.
The Advisor’s Role
As financial advisors, we often help employers understand how these service providers fit together. While we do not replace the TPA or recordkeeper, we can help coordinate conversations, review plan service arrangements, identify potential gaps, and ensure that the plan’s design supports the company’s goals. For employers, the objective is not just to have service providers in place. The goal is to have a coordinated team where each provider understands its role and communicates effectively with the others.
Grimes & Company has a dedicated team that specializes in providing investment advisory services to retirement plan fiduciaries and their employees. We assist clients with investment selection and monitoring, fee benchmarking, plan design and employee education, so please reach out with any questions as to how we can help you achieve your goals.
Important Disclosures:
Past performance is no guarantee of future results. Different types of investments involve varying degrees of risk. Therefore, there can be no assurance that the future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Grimes & Company Wealth Management, LLC (d/b/a Grimes & Company) [“Grimes”]), or any consulting services, will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Neither Grimes’ investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Grimes is engaged, or continues to be engaged, to provide investment advisory services. Grimes is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Grimes. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.grimesco.com/form-crs-adv/. The scope of the services to be provided depends upon the needs and requests of the client and the terms of the engagement.