As soon as you and your employees are eligible to take part in the 401(k) plan, you need to set up individual participant accounts. These accounts are called investment management (IM) accounts and hold the deferrals from employee pay to the 401(k) plan.
Setting these up accounts can feel intimidating, but the key to success is learning your responsibilities. Here’s what you need to know about setting up and managing investment management accounts for plan participants.
Why You Need to Set Up Investment Management Accounts
It’s possible that you might not need IM accounts for several months after starting your business’s 401(k) plan. Many clients don’t need these accounts until they have eligible employees who want to take part in the plan. Even then, it often takes up to a year for any employee to become eligible to participate in the 401(k) plan.
Some scenarios do require the accounts to be set up sooner. Here’s an overview of situations that require an investment management account.
- You have rollover money that wasn’t used during your initial stock purchase.
- Any employee wants to roll money over from a previous 401(k) plan.
- Any eligible employee would like to begin making salary deferrals.
Learn more about meeting 401(k) plan eligibility requirements.
How to Set Up Investment Management Accounts
Your 401(k) plan requires a specific kind of IM account for each employee. Follow these steps set up the right kinds of accounts.
Find an Investment Management Brokerage Firm
You’ll work with an investment management provider to set up your accounts. Investment management providers vary widely in their processes. By choosing to work with one of our In-Network IM providers, it helps us streamline your annual reporting, which saves time for our clients and our team. Clients who use In-Network IM Providers are not charged per plan participant and the $500 Guidant set up fee is waived – saving you hundreds annually. Below is a list of our In-Network IM providers:
- Voya
- ePlans
- Retirment Plan Consultants
- American Funds
Out-of-Network IM providers may not open the kind of account(s) you need. You can learn more details and contact information for our In-Network IM providers here.
Set Up Individual Accounts
Each employee who puts money in the 401(k) plan needs their own IM account. The typical structure is one master account and several sub-accounts, which are all connected. Each participant has one sub-accounts in their name, though all accounts are under the same 401(k) plan. This is the 401(k) plan we helped you set up for your business.
During the setup/application process, you’ll only need to apply for one master account. Each participant (including yourself) will submit an application for a sub-account. A few things to keep in mind:
- You’re setting up participant accounts, not a new 401(k) plan.
- You have seven days from the payroll date to deposit deferrals into employee sub-accounts. This is why individual account setup is so important.
- Employee sub-accounts must be self-directed. This gives participants control over their investments.
- If your 401(k) plan allows for Roth deferrals, there must be separate accounts for Roth deferrals and pre-tax deferrals.
Make Deposits
Individual accounts hold money from employee deferrals, employee rollovers, and employer matching. Here’s an overview of the deposit process:
- On payday you’ll either:
- Send one check from your corporate bank account to the master investment account.
OR - Ask your payroll provider to send in the contributions to your investment firm. This check/deposit should include all participant funds for that pay period.
- Send one check from your corporate bank account to the master investment account.
- Either you or your payroll provider will also send a deposit breakdown form. This form includes participant names and their total contributions. Your brokerage firm uses this sheet to move the correct money from the master account into each participant account.
- You must keep an accurate record of the funds sent to each participant account.
Avoid Common Account Errors
Set up the correct kind of account(s) for your 401(k) plan by avoiding these common errors
- Don’t set up another 401(k) plan. You already have a 401(k) plan and should not set up another retirement plan for your company.
- Don’t ask someone to set up accounts for you. As the trustee of your plan, you must work directly with the investment firms to set up accounts. Guidant can’t set up accounts on your behalf.
- Don’t act as a fiduciary. Make sure your employee accounts are self-directed. This gives employees control over how their money is invested.
- Don’t only set up a master account. Employee funds must be deposited into each individual sub-account.
Late Deposits
Depositing employee funds on time is a crucial part of plan management. You have seven days from the payroll date to deposit deferrals into individual employee accounts. This is an IRS requirement.
If deposits are made late, you have to make contributions to employee accounts. Guidant will help you calculate those contributions during your annual 401(k) plan maintenance process. Making late deposits and/or keeping employee deferrals in the master account can lead to very costly corrections.
Providing Investment Management Statements to Guidant
During your annual 401(k) plan maintenance process, we need your IM statements. This includes all individual participant accounts as well as the master account. You’ll also need to keep a record of the total funds sent to your investment provider for each participant account.
Your annual 401(k) plan maintenance can’t be completed until we have all the IM statements. This includes all the IM statements for every participant. Without all of these IM statements, we can’t perform the annual testing or Form 5500 preparation that is part of the 401(k) plan maintenance process. If you opt for one of our in-network providers, you can provide us with online access to these statements.
We use your investment statements for a number of testing purposes including:
- Compliance testing
- Confirming Safe Harbor matching
- Ensuring accurate amounts in each account
- Calculating late deposit corrections
You do not need to wait until after the plan year ends to send us your statements. You can scan and upload copies of the statement via the client portal or if you opt for one of our In-Network providers you can provide us with online access to these statements.
Key Takeaways
- It’s your responsibility to set up accounts with an investment management (IM) firm.
- Choose a firm that meets your company 401(k) plan’s specific needs.
- Don’t set up another 401(k) plan or make other common mistakes.
- Set up individual accounts for each 401(k) plan participant.
- Deposit funds into the individual participant accounts on time.
- Guidant needs all IM statements for each participant.