Build vs buy: software for 401(k) TPAs and recordkeepers
When off-the-shelf software is enough, when custom work pays off, and the hybrid most firms end up with.
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Pick a team that can explain your rules back to you, shows work you can inspect, keeps participant data out of development, tests every calculation against examples your compliance team approves, and leaves you owning the code and documentation.
Ask the team to explain the ADP test limit, the difference between the 402(g) and 415(c) limits, and how a plan year runs from census to Form 5500. A team that needs this explained will learn it on your budget.
Ask for client references in the 401(k) space and for something you can look at: a product, a demo or a redacted sample. Testimonials should name a person and a firm you can verify.
Development and testing should use synthetic or masked data. Production access should happen in your environment, with accounts you control and revoke. The US Department of Labor publishes cybersecurity guidance for plan service providers that is a useful checklist.
Every test and limit check should be built against worked examples your compliance team signs off, and those examples should run automatically on every change.
Ask how the system records who changed a number, when and why, and whether balances can be rebuilt as of a past date.
Payroll exports, recordkeeper files, custodian feeds, SFTP and APIs. Ask how a new payroll provider gets added: configuration or new code.
IRS limits change every autumn and laws such as SECURE 2.0 add new rules. Limits should live in data, versioned by plan year, not in scattered code.
Testing and filing seasons are when software must not fail. Ask what cover the team gives in those months.
A fixed weekly status call, a shared backlog and written updates matter more than the team's location.
Confirm that you own the code, the data model and the documentation, and that another team could take over.
| Ask | A good answer |
|---|---|
| Walk us through how you would build our ADP/ACP test. | Starts from worked examples, explains the limit formula, mentions corrections and traceability. |
| Where will our participant data live during development? | Nowhere outside your environment; synthetic or masked data is used. |
| How do you handle next year's IRS limits? | A reviewed update to a versioned limits table, with regression tests re-run. |
| What happens if we stop working together? | You keep the code, documentation and data; handover is planned. |
| Who will we talk to every week? | A named lead who knows the domain, not only a project manager. |
Software Home is a 401(k) software development company, so this guide reflects how we work. See our TPA software and compliance testing pages, or contact us.
When off-the-shelf software is enough, when custom work pays off, and the hybrid most firms end up with.
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