What Is a 401(k) Custodian?

401k custodians are responsible to the plan participants for good business practices

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An employer who establishes a 401k plan for the benefit of its employees has a responsibility to operate that plan following all regulatory requirements. The plan must appoint a custodian, or trustee, to ensure that this is done. The custodian has many responsibilities in this process. Often, the custodian is an employee of the company, but companies still can hire outside service providers to handle many of the responsibilities, such as providing Web-based access to the participant's accounts.


A 401(k) custodian may be an in-house or contracted fiduciary that has a duty of care to act in the best interests of the plan participants. A custodian's responsibilities include record keeping, administering the plan and diversifying plan investments.

Upholding Interest of the Participants

A fiduciary responsibility of the custodian means that he must operate the 401k plan in the best interest of the participants. His actions and decisions with the plan cannot be self-serving to the exclusion of the other participants, although he is allowed to profit and gain as long as the other members have the same opportunities. For example, he should not accept payments for choosing a particular investment or a particular service provider.

Diversifying Plan Investments

The custodian is responsible for diversifying the plan investments. Many 401k plans allow the participants to choose different types of investments. It is the custodian's responsibility to make certain that investments are available to suit most of the participants. Most custodians will make sure a fixed-rate option is available, as well as various investments in bonds and equities, suiting a wide variety of risk tolerances. If the plan does not allow choices, the custodian chooses the investments for everyone.

Keeping Records and Administering Plan

The custodian of the 401k plan is responsible for record keeping and the administration of the plan. This includes producing the statements for plan participants as well as filing any necessary reports with the government or the IRS pertaining to the plan. He is also responsible for answering questions about the plan from its participants and making sure that any fees pertaining to the plan are paid and accounted for to the participants.

A Custodian's Limited Liability

A custodian can expose himself to liability if he does not carry out his responsibilities correctly. This liability is focused on the process he uses to carry out his responsibilities, and if that process is prudent. If the custodian used a reasonable, prudent process, including research and consultation with qualified experts concerning his decisions, his liability will be limited. In addition, the custodian's liability for investment losses is further limited if he gives plan participants the ability to choose their own investments.