Offering a 401(k) plan is a powerful way to attract and retain top talent. It shows your team you're invested in their long-term financial security. But sponsoring a plan isn’t a set-it-and-forget-it task. Under the Employee Retirement Income Security Act (ERISA), you have a fiduciary duty to act prudently and in the best interests of your plan's participants.
Letting your 401(k) plan run on autopilot can lead to significant problems, even if you use a third-party administrator. As the year draws to a close, now is the perfect time to review your plan's administrative processes and ensure you're meeting your responsibilities.
Re-evaluate Your Investment Options
Start by studying the investment choices available to your employees. Do they cater to a diverse workforce with varying risk tolerances and retirement timelines?
- Check the Spectrum: Ensure your plan offers a good mix of options, from conservative to aggressive, that allows workers of all ages to build a suitable portfolio.
- Review Default Funds: If your plan has a default investment for participants who don't make their own selections, confirm it's still an appropriate choice. Age-based or target-date funds are common, but they should align with your employee demographics.
- Formalize Your Policy: If you don't have a written investment policy or an independent manager to help monitor investments, consider adding these risk-management measures. A formal policy provides a clear framework for making and justifying investment decisions.
Scrutinize the Fee Structure
The fees associated with 401(k) plans can eat into employee returns and sometimes attract negative attention. It's your job to ensure they are reasonable.
- Benchmark Participant Fees: Calculate the fees your employees are paying and compare them against industry standards.
- Analyze Administrative Costs: Examine how administrative, recordkeeping, and advisory fees are allocated. Are they paid by the business, the participants, or a combination?
- Assess Total Plan Costs: Compare your plan's overall costs to those of similarly sized plans. This helps determine if your fee structure is competitive and fair in the current market.
Check on Your Third-Party Administrator
Even with a third-party administrator (TPA) handling daily operations, the ultimate responsibility rests with you. Periodically verify that your TPA’s processes are up to snuff.
- Confirm Controls: Ensure your administrator has strong internal controls, robust cybersecurity practices, and secure data-handling procedures.
- Verify Documentation: Check that the TPA maintains proper documentation and follows timely, accurate reporting practices.
- Assess Support: Confirm they provide adequate support when compliance questions or issues arise. A proactive review can prevent operational errors or data breaches from exposing your business to unnecessary risk.
Ensure Overall Compliance
Regulatory compliance is non-negotiable. A small oversight can turn into a costly failure.
- Review Plan Documents: Many sponsors stumble by not aligning their operational practices with their plan document. Double-check that key processes like contribution timelines, eligibility rules, vesting schedules, and loan administration follow the terms exactly.
- Stay Current on Regulations: Are your plan's procedures in line with the latest ERISA requirements? If your plan is designed to be participant-directed, does it meet all provisions of ERISA Section 404(c)?
- Conduct Internal Audits: Periodic internal audits can help you spot inconsistencies or errors before they become major problems.
Take Back the Controls
A 401(k) plan is a significant asset to your business and your employees, but it comes with serious responsibilities. If your leadership team hasn't reviewed your oversight practices recently, the end of the year is an ideal time to take stock.
We can help you analyze plan costs, identify potential compliance gaps, and tighten your internal controls. Let's work together to ensure your plan remains a powerful, well-managed benefit for everyone.