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.
First, employers must meet investment-related fiduciary responsibilities.
This can feel complicated, especially for small business owners with little investment experience. But, at its core, it’s simple—you must offer a fund line-up of “prudent” investments. This means the funds will allow your employees to access a broad range of financial markets at a reasonable fee.
For most employers, this means relying on index funds to offer their employees broad market access at a very low expense ratio. This is a win-win, simplifying the process for employers and offering low-cost funds for the employees.
But, employers can also 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.
Next, employers must meet administration-related responsibilities.
These responsibilities include:
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.
Employers must protect plan assets from unreasonable fees.
This ensures employers aren’t severely impacting employees’ ability to retire with unnecessary fees. That’s because even small plan fees can dramatically impact a retirement portfolio over a long enough timeline. But unfortunately, the definitions around what’s reasonable and what’s not aren’t always so clear.
Many employers benchmark their fees against competitors’ 401(k) plans, ensuring that they are in line with industry averages.
This means comparing both the investment-related fees (expense ratios) and the plan fees altogether. By comparing your plan fees to three or more competitors, you can ensure that you are only paying reasonable expenses from plan assets, staying compliant with your fiduciary duty.
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.
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.
Lastly, employers have a fiduciary responsibility to select competent service providers with reasonable fees. But, this can be difficult to navigate as the services offered by providers can vary significantly by breadth and cost.
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.
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.