Why your payroll provider should not be your third party administrator for retirement plans

When speaking to my clients about our business model compared to the two largest payroll providers, I keep coming back to “Don’t Use Your Payroll Provider as your 401(k) Provider” written by Ary Rosenbaum, an ERISA/retirement plan attorney.

What stands out is that in the complex and ever-changing landscape of 401(k) plans; what remains the same over the years is to never hire your payroll provider as your third party 401(k) administrators. The reasoning is sound. At a very basic level, payroll has very little to do with 401(k)s and having an expert in this area to guide you through and offer you advice along the way, is truly the best plan.

There seems to be a preconceived notion in the value that a 401(k) third party administrator provide. This is most likely why big payroll companies have been successful at bulking retirement plans in with payroll – to make more money. “The problem is that retirement plans must abide by the highly technical rules set forth by the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (“ERISA”), the federal law applicable to qualified retirement plans.” Rosenbaum goes on to explain the many complexities of retirement plans that are not common knowledge. If something does go wrong with retirement plans, the business is ultimately responsible – not the third party administrator. So its best to go with the experts – the ones that will keep businesses protected and in compliance with all of the moving pieces.

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