Looking at the inner workings of the 401k

20131112-232846.jpgExcerpted from article by: Clifton Linton, Senior Writer, mPower

So who are the cast of characters associated with a typical 401k Plan?

The cast:

Plan Sponsor: This is the employer.  They establish the plan, set vesting conditions, implement investment limitations, matching contribution percentages etc.

401k Participant: This is the employee.  The maximum amount that the employee can is determined by the IRS.  The investments that the employee can make include mutual funds, individual stocks, and bonds.  The plan sponsor’s recordkeeper will typically have a set of preferred plans.

Recordkeeper: Tracks contribution rates, investment selections, employer matching contributions, provides account statements, and maintains information about 401k loans that may be outstanding.

Trustee: Actually technically holds the assets.  Has the exclusive authority and discretion to manage and control the assets of the plan. The trustee can be subject to the direction of a named fiduciary and the named fiduciary can appoint one or more investment managers for the plan’s assets.

Investment Manager: Offers the funds to the individual; managers the funds.