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401(k) Solutions – Is Your 401(k) the Best it Can Be?

How would you rank your 401(k) plan in being the best it can be to meet your organization’s and your employees’ needs?  Do you know where to start? 

Last month’s When Ignorance Isn’t Bliss suggested questions worthy of asking to obtain better plan funds, benefit from professional investment management, and improve plan design features.  This month, Is Your 401(k) the Best It Can Be? will address these critical areas:

  • Have you taken advantage of ERISA safe harbors to reduce your fiduciary risk?
  • Is your plan easy to administer and do you understand ERISA’s regulations?
  • Are you aware of all plan fees and know they are reasonable?

ERISA Safe Harbors

1. What’s Fiduciary Risk?

-          Be aware that employer plan fiduciaries have potential personal liability for plan decisions and actions.  Failure to meet ERISA requirements can result in financial penalties against fiduciaries’ personal assets.

-          Know that fiduciaries include persons responsible for 401(k) plans or who hire others with responsibility.  They can include company owners, boards of directors, executives and managers administering plans and making plan decisions, and plan committee members.

2. How can Fiduciary Risk be reduced?

-          Benefit from ERISA provisions that allow plan fiduciaries to delegate certain responsibilities when fiduciaries are not experts

  • Consider delegating all investment selection/monitoring responsibility.  Many lawsuits question processes used to select and monitor plan investments.  Make sure an advisor accepting sole investment responsibility is qualified under ERISA 3(38) – Caution:  brokers may not serve in this capacity! – and agrees to such liability in writing.
  • Consider delegating some or all administrative responsibilities.  Obtain written assurance that a provider will accept sole liability for a specific service – such as approving distributions – or serving as your plan’s ERISA 3(16) Plan Administrator.  3(16) Administrators can relieve you of liability for hiring and monitoring plan service providers, signing plan documents, filing IRS Form 5500 and more.

-          Explore a Qualified Default Investment Alternative.  Selecting an investment default that meets ERISA 404(c)5 can relieve plan fiduciaries of potential liability when participants fail to make an investment selection.

-          Understand ERISA 404(c). Plan fiduciaries are relieved of potential liability when the Summary Plan Description states a plan intends to operate under ERISA 404(c) and participants are provided necessary fund information.

Ease of Plan Administration

  1. How can compliance ever be easy?

-          Evaluate your service providers. Knowledgeable service providers that work well together and perform tasks for you save you headaches as they keep you compliant under ERISA.

-          Assess how well service providers keep you informed. Whether you perform a task or delegate a responsibility, be satisfied that you understand what is necessary.

  1. How can I determine whether my service providers offer the highest level of service?

-          Identify optimum advisory services. In addition to providing investment services, knowledgeable advisors consult on plan design strategies, explain compliance, and coordinate with other providers.

-          Consider Third Party Administrators. A TPA should help you achieve organization goals as it creates the plan document and consults with you and your advisor.  TPAs conduct annual plan testing, identify contribution options, and prepare tax forms accurately.

-          Know that recordkeepers vary. Seek one that will perform administrative tasks, including tracking eligible participants, distributing required notices, automatically rolling out terminated participants with low balances, and providing user-friendly websites.

Ensuring Plan Fee Reasonableness

  1. How can I determine plan fees?

-          Locate and review Service Provider Disclosures.  Since 2012, when ERISA 408(b)2 was implemented, you have been required to receive information on plan services and fees.  Most service providers fulfill your obligation by providing 408(b)2 reports at least annually; work with providers that provide regular reporting.

-          Understand how plan fees are charged.  Many plans still use “revenue-sharing,” bundling together fees to pay fund managers and your recordkeeper, TPA, advisor and any other providers and then remove fees from investment returns before the returns are deposited to participant accounts. Often called “hidden fees,” revenue-sharing can lead to higher prices. Look for providers whose fees are “transparent” – removed directly from participant accounts and reported on account statements.

  1. How can I determine if plan fees are reasonable?

-          Understand your responsibility. Plan sponsors must have a process to regularly review plan services and fees and document they are reasonable.  This is one responsibility you may delegate to an ERISA 3(16) Plan Administrator.

-          Seek available resources. Good ways to benchmark plan fees for service include hiring an independent consultant, requesting RFPs, and consulting the 401k Averages Book, which is published annually.

The stakes are high when your organization’s 401(k) plan isn’t all it can be. Look closely at your plan, assessing each plan area.  Your organization and your employees will benefit!

Written by Laurie C. Wieder, PPC®, Vice President, Alliant Wealth Advisors, Qualified Plans Division


This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan, and hence cannot be a guarantee against fiduciary breaches.

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