My great uncle was in the meat provisions business for over 40 years. When Uncle Jack told us which hot dogs we should eat, we trusted his opinion because he knew how hot dogs were made (the company he worked for made Sabrett). While 401(k) plan administration is a lot cleaner that the hot dog business, plan sponsors are usually unaware of the intricate work performed by third party administrators (TPAs). That’s a concern because then most plan sponsors don’t value the role of a good TPA. A good part of a TPA’s work is the performance of compliance testing to make sure that the plan passes the required discrimination testing which is a requirement of the Internal Revenue Code that a qualified retirement plan must do. So this article describes the fundamentals of compliance testing for 401(k) plans, so plan sponsors can better understand the role of a good TPA in dealing with the administration of a 401(k) plan.
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