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How Much Time Does Annual 401(k) Administration Take?

Eric Droblyen

January 25, 2023


According to AARP, Americans are 15 times more likely to save for retirement when they can do so by payroll deduction through a workplace retirement plan. However, while most large businesses – companies with more than 100 employees – sponsor a retirement plan, 51 to 71 percent of small businesses don’t. In a Pew Charitable Trusts survey, small business owners cited “resources required to start and maintain a plan” as one of the top reasons they don’t sponsor a 401(k) plan. To help more Americans save for retirement, overcoming this concern is essential.

If you count yourself among the wary, I think quantifying the amount of time you can expect to spend on 401(k) administration can help put you at ease – because it’s probably less than you might guess. While it’s indisputable that 401(k) plans are subject to numerous and technical plan qualification requirements, a quality 401(k) provider will do the heavy lifting, leaving you with just a few basic plan administration tasks to complete each year. These tasks can usually be completed quickly due to technology and managed easily using a checklist.

How much time? Below are estimates based on a typical 30-participant 401(k) plan.

Annual Administration Tasks

Each year, 401(k) plans must complete a myriad of administration tasks to meet plan qualification requirements. While these tasks are technical in nature, a quality 401(k) provider will do the heavy lifting. Your part can take an hour or two annually.

Annual Administration Tasks

Task Description

401(k) Provider Responsibilities

Employer Tasks

Time Required (per event)

Year- end questionnaire – Following the close of a plan year, 401(k) providers will request the information they’ll need from a small business to accurately complete their testing and Form 5500 for the year.

Deliver questionnaire. Reconcile and missing or inconsistent information received.

Complete questionnaire as directed.

Up 30 minutes.

Nondiscrimination Testing - 401(k) plans must pass annual nondiscrimination testing to ensure plan contributions do not disproportionately benefit Highly-Compensated Employees (HCEs) or exceed legal limits. Consequences of late testing include missed tax deductions, IRS penalties, and plan disqualification.

Complete all required testing based on financial reports and an employer-completed questionnaire. Allocate any year-end employer contributions. Calculate the corrective refunds and/or allocations necessary to correct a failed test. 

Review test data and results. Approve any year-end contribution allocations or corrective refunds. 

Up to 30 minutes.

Form 5500 Reporting - most 401(k) plans must file a Form 5500 annually. This return is designed to disclose certain plan-related information to the federal government and plan participants. A Summary Annual Report (SAR) that summarizes certain Form 5500 information must be distributed to plan participants.

Prepare Form 5500 based on financial reports and employer responses to an online questionnaire. 

Review Form 5500 responses. File electronically as directed.

Up to 30 minutes.

Distribute SAR as directed.

Up to 10 minutes if all SARs can be delivered electronically. 


Participant Disclosure - 401(k) plans must disclose certain information to plan participants from time to time. These disclosure notices are intended to equip participants with the information necessary to make timely and informed decisions about their account. In general, they must be distributed 30-90 days before the start of each new plan year.

Prepare all required notices based on ERISA requirements and plan features (e.g., fee disclosure, safe harbor, automatic enrollment, QDIA). Generally, all required notices will be delivered together. 

Distribute notices as directed.

Up to 10 minutes if all notices can be delivered electronically.

Benefit Statements – participant-directed 401(k) plans must provide a benefit statement to all participants with an account balance no later than 45 days after the end of each quarter.

Prepare statements. 

None if requirements for posting statements online are met.

None if requirements for posting statements online are met.

Required Minimum Distributions (RMDs) – 401(k) plans must distribute RMDs to eligible participants no later December 31 each year – or the following April if a postponed first-year RMD.

Determine all plan participants eligible for an RMD. If any, calculate the RMD amount.

Review and approve RMDs.

Up to 10 minutes.

High 401(k) Fees

Events-based Administration Tasks

Most 401(k) administration tasks are triggered by events. The major ones are summarized below. 

Events-Based Administration Tasks

Task Description

401(k) Provider Responsibilities

Employer Tasks

Time Required (per event)

Contribution deposits – generally, small businesses (under 100 employees) must deposit employee contributions (including participant loan repayments) no later than the 7th business day following the date they were withheld from wages.

Process the contribution files submitted by the employer - or their payroll company. Resolve any data issues. ACH contribution total.

Ensure employee contribution and loan repayment amounts are correct. Submit contribution files timely.

Up to 30 minutes (depending upon number of contribution and loan changes).

Distributions – 401(k) plans can have dramatically different distribution options. Distributions requested by an eligible participant must be processed within a reasonable period. 

Confirm the participant’s eligibility for the distribution based on their account information and plan document terms.

Confirm the participant’s identity and the accuracy of their account information. For a hardship, document the need. Approve


Up to 15 minutes (depending upon submission method and distribution type).

Participant Loans – 401(k) plans are under no obligation to offer participant loans. If they do, all loans must be administered according to the terms of a written loan policy.

Confirm the participant’s loan eligibility based on the terms of the plan. Create promissory note for participant and employer approval.

Ensure proper approval of the promissory note. Ensure repayments are established on payroll system

Up to 20 minutes. 

Participant Enrollment – all new plan entrants must receive a Summary Plan Description (SPD), required disclosure notices and enrollment instructions in time to join the plan once they met its eligibility requirements.


Create an enrollment package for the employer to provide to new participants.

Provide enrollment package to new participant. Ensure payroll system reflects new contribution elections

Up to 10 minutes

How to Reduce the Time Spent on 401(k) Administration

When 401(k) administration takes a lot of time, there’s often an avoidable reason for it. To keep the time spent on plan administration to a minimum, my top three recommendations are: 

  • Provide accurate information – a 401(k) provider must rely on the company and participant information they receive from you to do their job. When a provider catches missing or inconsistent information, they must reconcile it – which can require a lot of back-and-forth communication with you.
  • Read your plan document – by law, the annual administration of a 401(k) plan must be governed by the terms of a written plan document. And yet, many small businesses can’t even locate a copy of their document, let alone tell you its terms. Not knowing the terms of your plan document can easily lead to inaccurate administration – which can be time-consuming (not to mention, costly) to fix. 
  • Ask questions – when you have questions about 401(k) administration, contact your provider. A quality 401(k) provider will answer them quickly and clearly, saving you time. 

Don’t Forget to Document

In general, 401(k) plan records must be kept for a period of not less than six years after the filing date of the Form 5500 created from those records. However, records necessary to a participant’s claim for plan benefits must be kept longer. These records must be kept “as long as a possibility exists that they might be relevant to a determination of the benefit entitlements of a participant or beneficiary.” This can mean indefinitely.

While only small civil penalties are possible if required plan records are not preserved, missing records can make it more difficult for a small business to defend plan operations or the accuracy of benefit payments if they are ever challenged by the IRS, DOL or plan participants. That can increase liability.

Due to the consequences, I recommend your develop a filing system for records related to plan administration records. This step will probably only take an hour or two.

Hire a Quality 401(k) Provider to Minimize Your Time!

There is no question that 401(k) plans encourage Americans to save for retirement. They also offer generous tax benefits to savers and small businesses. However, to qualify for these benefits, a plan must complete a myriad of plan administration tasks annually. These tasks can easily appear overwhelming to the uninitiated small business owner.

In truth, they can take as little as a few hours in total each year to complete. The key is hiring a 401(k) provider that’s willing and able to do three things - 1) summarize all required tasks, 2) complete the more difficult and time-consuming ones, and 3) provide simple direction for the rest. 

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