Tips on how to be a great 401(k) fiduciary
Pay reasonable fees
As you know, fees can really chip away at your participants’ account balances. Take care to ensure that the services you’re paying for are necessary for the plan and that the fees paid from plan assets are reasonable. To determine what’s reasonable you may need to benchmark the fees against those of other similar retirement plans.
Deposit participant contributions in a timely manner
This may seem simple, but it’s extremely important to do it quickly and accurately. Specifically, you must deposit participants’ contributions to your plan’s trust account on the earliest date they can be reasonably segregated from general corporate assets. The timelines differ depending on your plan size:
Small plan—If your plan has fewer than 100 participants, a deposit is considered timely if it’s made within seven business days from the date the contributions are withheld from employees’ wages.
Large plan— If your plan has 100 participants or more, you must deposit contributions as soon as possible after you withhold the money from employees’ wages. It must be “timely,” which means typically within a few days.For all businesses, the deposit should never occur later than the 15th business day of the month after the contributions were withheld from employee wages.
Fulfill your reporting and disclosure requirements
Under ERISA, you are required to fulfill specific reporting requirements. It’s important to note that if required government reports—such as Form 5500—aren’t filed in a timely manner, you may be assessed financial penalties. Plus, when required disclosures—such as safe harbor notices—aren’t provided to participants in a timely manner, the consequences can also be severe including civil penalties, plan disqualification by the IRS, or participant lawsuits.
Follow the plan document
It’s important to know your plan document. In fact, the IRS mandates that 401(k) plans operate in accordance with the terms of its written document to maintain its tax-favored status and prevent a breach of fiduciary duty.
Select prudent investments
Unfortunately, there can be many hidden fees buried in plan investments, so it’s critical to be vigilant about those you select. In addition to fee considerations, you must also think about whether they meet your plan’s investment objectives and if they are appropriate for your participants.