Who’s on the Hook for Your 401(k)? (Hint: It’s You)
When you set up a 401(k), you were probably thinking about your employees. Maybe a candidate asked about it, or a longtime employee mentioned retirement. Either way, once you signed the plan paperwork, you took on a role you may not have planned for: fiduciary.
What’s a fiduciary? It’s someone the law trusts to manage money on another person’s behalf. Under the Employee Retirement Income Security Act (ERISA), the federal law that covers most private-sector 401(k) plans, it means every decision about the plan must be made in your employees’ best interest, with the care an expert would use. Get it wrong, and you can be held personally liable.
Most business owners don’t give much thought to fiduciary responsibility until an auditor raises an issue or an employee asks a question you can’t answer. Staying ahead of it doesn’t mean becoming a retirement expert. It starts with knowing which questions to ask. That’s what we’ll cover during 401(k) Straight Talk for Employers, our live panel on October 13.
Hiring an advisor doesn’t let you off the hook
A lot of employers assume their advisor or provider is handling it. Some of it, sure. But the law draws a clear line: you can delegate the work, but you still own the responsibility.
There are ways to shrink that exposure. Some providers will formally take on certain fiduciary roles, and depending on the setup, that can take a lot off your plate. You’re still responsible for choosing those partners and reviewing their performance. For most businesses, an annual review is a reasonable schedule.
Who actually runs your plan
A well-run 401(k) is a team effort. Payroll sends the contributions, the recordkeeper tracks each employee’s account, a third-party administrator, or TPA, handles compliance testing and filings, and an advisor helps with investments.
When each partner has clear information and handoffs, the plan can run smoothly and small issues are easier to address early. As the plan sponsor, you’re in a strong position to keep everyone connected and working toward the same goal.
Fees and deposits: where the money leaks
Fees are easy to overlook because employees usually pay them, and many come straight out of investment returns instead of showing up on an invoice. The legal standard is “reasonable” for your plan’s size and services, which isn’t the same as cheapest. If nobody has benchmarked your fees against similar plans in the last year or two, ask for it.
Deposit timing is another area where staying proactive is important. The Department of Labor wants employee contributions sent to the plan as soon as your payroll process reasonably allows. If withheld money sits in your operating account for a few weeks, it’s treated as a prohibited transaction, and that comes with excise taxes and correction work.
The rules are still changing
As of this fall, about 15 states require employers without a retirement plan to sign up for a state program, and roughly 25 more have legislation in the works. Each state sets its own thresholds, so if your team works across state lines, you may be dealing with more than one set of rules. Check the relevant government websites to learn more about the requirements that apply to your business.
SECURE 2.0 Act (SECURE stands for Setting Every Community Up for Retirement Enhancement) added its own changes. Many new plans now have to auto-enroll employees, and long-term part-time workers become eligible after two straight years of at least 500 hours.
Ready for Straight Answers on Your 401(k)?
Join our webinar 401(k) Straight Talk for Employers on Tuesday, October 13 at 1:00 PM ET, as CommPayHR founder Jeff Plakans leads a panel of 401(k) experts through plan design, roles and responsibilities, SECURE 2.0, payroll integration, and more. You’ll leave with a clear framework and the right questions to ask.
