Understanding your fiduciary responsibilities as a 401(k) plan sponsor is critical to staying compliant and protecting yourself from personal liability. In short, no matter what, the buck stops with you. (Yes, we made a visual pun! Enjoy.)
The Department of Labor (DOL) defines significant fiduciary responsibilities for plan sponsors.
There are risks associated with being a fiduciary of your company’s 401(k) plan, including that individuals taking on this responsibility can be held personally liable for a breach of responsibility.
So, how can you manage fiduciary responsibilities as a 401(k) plan sponsor effectively? And ensure compliance while looking out for the best interest of your plan participants—as well as yourself? First, let’s clarify what defines a fiduciary.
As a plan sponsor, you’re a fiduciary if you…
- Have any discretionary authority or control over the plan’s management.
- Exercise any authority or control over plan assets.
- Provide investment advice for a fee.
- Have any discretionary authority over plan administration.
The catch is, even if you have service providers sharing the oversight in any of these areas, fiduciary responsibility for a company’s retirement plan ultimately rests upon Plan Sponsors.
How to protect yourself and take care of your participants
1. Form a 401(k) administrative committee
First, form a committee authorized by the board of directors. This group should handle fiduciary, compliance, and reporting tasks. It’s best to include senior-level officials like heads of finance, HR, benefits, and in-house legal counsel. These members bring valuable insights into the plan’s operations.
2. Hold regular committee meetings
Next, once your committee is in place, schedule regular meetings—quarterly is a standard frequency. These meetings are essential for reviewing investment performance, discussing compliance issues, and tackling any reporting matters.
3. Take and retain meeting minutes
Keep detailed minutes of all committee meetings. Documentation is key to demonstrating that fiduciaries are meeting their duties and acting in participants’ best interests. Because without it, proving compliance becomes much harder.
4. Develop and follow an investment policy
Create an investment policy statement (IPS). This document will guide your decisions on the types of investments offered in the plan. It helps in evaluating which options are performing well and which ones need to be replaced, ensuring that investments meet acceptable benchmarks.
5. Review administrative fees for reasonableness
Don’t fall into the trap of thinking your 401(k) plan is low-cost just because you’re not paying separately for fees. All plans have administration costs, often hidden in investment returns and paid by participants. Regularly review these fees to ensure they’re reasonable and do not eat into participants’ returns.
6. Consider an outside investment advisor
If all this sounds overwhelming, consider hiring an independent investment advisor, separate from your other service providers, who can offer unbiased advice. They can help you develop an IPS, assess fund performance, and benchmark plan expenses against industry standards. This professional guidance can help you fulfill your fiduciary duties effectively.
Conclusion
By following these practices, you’ll be well-equipped to handle your fiduciary responsibilities, ensure compliance and act in the best interest of your plan participants. Regular meetings, thorough documentation, a clear investment policy, diligent fee reviews, and professional advice are all part of a solid fiduciary strategy, for instance.
Then when it comes time for your annual 401(k) plan audit, trust the team who’s successfully performed retirement plan audits for 10+ years, backed by 100+ years of combined experience: Contact Cassell Plan Audits today.
