Who is the Plan Administrator for an IRA?
Self-directed IRAs have grown increasingly popular, leading to confusion between the terms custodian and administrator being used interchangeably. Yet both entities play specific roles and responsibilities within retirement plans.
Plan administrators oversee daily decisions concerning administration and ensure that plans comply with regulations. In addition to conducting tests and filing required disclosure forms, they also monitor plan performance.
Your IRA should be held in trust by an IRS-approved institution such as a bank, credit union, savings and loan association or trust company that will oversee its maintenance by keeping records, administering paperwork and complying with regulations set by the government.
Custodians for Individual Retirement Accounts can specialize in either traditional investments (stocks, bonds and mutual funds) or self-directed accounts that provide access to alternative assets like real estate, private equity, cryptocurrency, precious metals or tax liens. When looking for the ideal custodian, find one who understands these unique investments as well as offering exceptional customer service.
Some IRA custodians only accept investments within their geographic area, which could limit your investment options. You should seek a custodian that accepts investments anywhere around the world and offers low fees and open communication lines, so that when questions arise you can get in touch quickly with them without incurring unnecessary charges that slow down retirement accounts.
Every IRA requires a trustee, which is defined as any person or entity who legally holds title to its assets, while its custodian can be an entity approved by the IRS to act both as trustee and custodian.
Custodians typically manage and store investment assets (with the exception of precious metals) as well as trading activities and manage asset purchases/sales transactions on behalf of trustees. A trustee has control over these activities to oversee them accordingly.
Custodians charge fees. Fees depend on the type of IRA and investments offered as well as annual account maintenance costs, mutual fund load charges and trade commissions.
Administrators are companies that handle the paperwork and filings associated with retirement plans. They offer various services, such as allowing investors to hold private investments within their IRA accounts, financial advice to owners of such plans, and may provide administrative services for SEPs, SIMPLE IRAs and Coverdell IRAs. Many administrators specialize in helping self-employed individuals or small business owners establish or administer their retirement accounts such as SEPs, SIMPLE IRAs or Coverdell IRAs.
The fiduciary duty of care and loyalty applies to anyone managing retirement plan assets or offering investment advice for a fee. A fiduciary is expected to act solely in the best interests of plan participants and beneficiaries while disclosing potential conflicts of interest and providing evidence that their recommendations are beneficial to investors.
The Department of Labor’s fiduciary rule establishes clear fiduciary standards and prudential standards for investment advice offered to IRA investors, enforced through individual contracts between financial institutions and each investor in an IRA account. This creates strong incentives for obtaining sound advice that adheres to fiduciary norms.
Custodians frequently serve as fiduciaries and can assist with ministerial tasks like recordkeeping. If desired, they may take on fiduciary responsibilities for an additional fee, or work with an existing fiduciary service provider who manages them on behalf of their clientele.
Plan sponsors are legal entities charged with overseeing retirement plans. This could be an organization, union or group; professionals can be hired to handle specific aspects of their retirement plan as needed by them. They’re accountable for selecting service providers with reasonable fees while making sure their plans comply with IRS rules and regulations.
Many large companies outsource the day-to-day ministerial tasks associated with running their retirement plan to an independent 3(16) plan administrator (also referred to as recordkeeper, third party administrator (TPA), or TPA). This entity accepts fiduciary responsibility for decisions related to administering and running the company retirement plan.
Plan administrators may hire a 3(38) investment manager to assume some or all of the fiduciary duties relating to investments for the plan, relieving itself of nearly all fiduciary responsibility for selection and monitoring of plan investments but still leaving some oversight obligations in place.