401(k) Fiduciary Responsibilities Employers Need to Know

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Being responsible for a 401(k) for your business can feel daunting, but it doesn’t have to. It can help to understand what a fiduciary is. 

A fiduciary is anyone who exercises authority or control over the management of a retirement plan or its assets.

Employers must take on several fiduciary responsibilities. But fortunately, they can outsource many of their fiduciary duties, allowing them to utilize a 401(k) provider like 401GO to cover many of the reporting, plan design, and investment selection aspects of their 401(k). Here are six needs business owners must ensure are met.

#1: Fees

Employers must take steps to protect plan assets from facing exorbitant fees, as these can significantly impact how much an employee may have to retire. Though it isn’t always clear what constitutes a reasonable fee and what is too high, many employers benchmark their 401(k) plan fees against those of competitors in the same industry. This includes comparing expense ratios for investments and the overall plan fees. By comparing your plans’ fees to three or more competitors, you will ensure that any expenses taken out of plan assets are reasonable and fulfill your fiduciary duty.

#2: Investments

Fulfilling investment-related fiduciary responsibilities can feel overwhelming for small business owners who may not have investment experience. However, the core of this obligation is straightforward; employers must offer a prudent selection of funds, so employees have access to various financial markets at an appropriate cost. Many employers find that using index funds is an easy solution that simplifies the process while providing low expense ratios for their staff. This arrangement works out well for both parties, making it a win-win.

But fortunately for those that aren’t confident selecting an investment line-up, they can outsource this task.

As the 3(38) fiduciary, we take on the responsibility and liability of selecting appropriate retirement funds and then make personalized recommendations to participants on allocating their investments.

At 401GO, we offer guided portfolio design as a feature of every 401(k) plan. That means we’ll design and suggest a customized portfolio based on each participant’s needs and investing goals. We use several factors such as the time until retirement and risk tolerance to suggest a customized portfolio.

#3: Deposits

Next, employers must deposit employee contributions in a timely manner.

Here are the rules, according to the IRS and Department of Labor:

“Department of Labor rules require that the employer deposit deferrals to the trust as soon as the employer can; however, in no event can the deposit be later than the 15th business day of the following month. Remember that the rules about the 15th business day isn’t a safe harbor for depositing deferrals; rather, that these rules set the maximum deadline. DOL provides a 7-business-day safe harbor rule for employee contributions to plans with fewer than 100 participants.”

Failure to timely deposit employee contributions can result in plan disqualification in certain instances.

#4: ERISA Fidelity Bond

An ERISA fidelity bond is “a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty.”

Employers must maintain adequate ERISA fidelity bond coverage that equals the lesser of 10% of plan funds or $500,000. Ultimately, this coverage protects the plan participants against losses resulting from larceny, embezzlement, misappropriation, and more. Most companies have liability coverage that will insure smaller plans, but once assets reach $100,000, it’s imperative that a bond is purchased.

It’s important to note that ERISA bond coverage must be purchased through an approved provider from The Department of Treasury’s list of Approved Sureties.

#5: Administration

Employers must also meet administration-related responsibilities such as ensuring the governing document is compliant with current law, following the plan document’s operational procedures, enrolling qualifying employees based on service and age requirements, allocating contributions to employee accounts according to the plan document, facilitating distributions per the plan and vesting schedule, and handling applicable plan loans. Government reporting requirements must be met for ERISA compliance, and records must be stored in line with ERISA document retention rules. Additionally, employers should stay up-to-date with plan testing, and any testing failures should be corrected promptly.

Again, employers can outsource these tasks. 401GO will handle all of these administrative duties and more as part of our automated 401(k) solution for small business owners. As the 3(16) plan administrator, we ensure plans comply with ERISA standards and handle all reporting and notifications to plan participants and the IRS.

So, while the administration-related responsibilities can be daunting, you don’t have to handle them alone.

#6: Choosing a 401(k) Provider

Lastly, employers have a fiduciary responsibility to select competent service providers with reasonable fee structures. However, this can be challenging to navigate as the services, and associated costs can differ greatly between providers. 

Making sure you’ve done your due diligence when selecting a service provider can be critical. Researching past performance and customer reviews is one way to ensure you make a well-informed, prudent decision. Additionally, comparing all costs associated with a particular service provider, such as set-up fees, ongoing support fees, and investment-related expenses, can help employers find the best choice for their plan assets while staying within reasonable fee structures and fulfilling their fiduciary duty.

For this reason, we recommend never using a provider whose fees and services you don’t fully understand. 
At 401GO, we make this simple by offering a one-stop shop for your 401(k) with no hidden fees. That’s no startup fees, no base fee, no filing fee, no compliance fee—no hidden fees in your 401(k) plan, period. This allows employers to feel confident in us as a 401(k) service provider, knowing that the fees are reasonable and the services are comprehensive.

Fintech Solutions Simplify Responsibilities for Business Owners

In the end, while the fiduciary responsibilities of a 401(k) plan can seem heavy, you never have to go it alone.

At 401GO, we provide small business 401(k) plans powered by an easy-to-use, automated platform. Our streamlined approach allows you to get up and running in just minutes with simple and affordable pricing to fit your unique business.

Learn more about our 401(k) options optimized for small and medium sized businesses.

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Nate Beck
As a business owner and automation expert, Nate is dedicated to creating streamlined user experiences.

Learn more about our 401(k) options optimized for small and medium sized businesses.

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