401(k) Plans: What Is Your Fiduciary Responsibility?
Copyright (c) 2014 Joe Maas
It can be very beneficial for a business owner to set up a 401(k) retirement plan to reward employees, as well as be able to help employees save money for retirement. Also, when adding a profit sharing or matching contribution to the plan, your company, known as the plan sponsor, has the opportunity to benefit from some tax savings. Note of caution: By setting up a 401(k) retirement savings plan, you open the door to another source of liability - fiduciary responsibility toward your employees. Consider these factors.
First, let's clarify who is a fiduciary. At the most basic level, a fiduciary is anyone that has discretion in administering and managing the 401(k) plan or controlling the retirement plan's assets. Ordinarily the fiduciaries would consist of the trustee, investment advisor(s), the plan's administrative committee members, and the people who elect people to fill these roles. It is important to note that simply deciding to have a plan, determining what benefits to include, amending a plan, and terminating a plan are business decisions, and thus do not make a person a fiduciary - it is the person who takes the action to implement these decisions that is the fiduciary.
The responsibilities of these fiduciaries include:
- Taking action solely for the purpose of providing a benefit to plan participants and beneficiaries - Performing their duties as described in the plan documents - Following the plan documents - Offering diversity in the plan's investment options - Paying reasonable fees for the administration of the plan
How can you limit your liability?
- Document every decision, the process used to carry it out, and the reasoning pertaining to fiduciary responsibility. - Give participants the ability to control the investment decisions in their accounts, but make sure to give them sufficient information to make informed decisions! - Monitor the investment manager periodically to ensure that he is handling the plan investments prudently. This is required of an employer. - Monitor the fees being assessed and make sure they are reasonable by having a plan comparison performed
The above steps are just a few ways to make sure that you enjoy all the benefits of providing a 401(k) plan to your employees and to prevent the plan from becoming a burden. There are, of course, other factors and concerns in maintaining a 401(k) plan, and you should contact your provider with any questions to make sure you have all of the information you need to make informed decisions.
About the Author
As a 401(k) plan sponsor, you have a fiduciary responsibility to the plan, its employees and beneficiaries. Ensure you are compliant by working with experienced 401(k) experts like the 401(k) team at Synergetic Finance. Learn more about 401(k) plans by visit Synergy online at http://synergy401k.com or http://synergy401k.com/blog or call to schedule a complimentary consultation.
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