Dear Business Owner, Behold Your 401(k) Plan Responsibilities!

As a business owner who wants to attract and retain top talent, you’ve decided to offer your employees a 401(k) plan to help them save for retirement. Employers with 401(k) plans benefit from these retirement plans in other ways, too, but with those benefits come important responsibilities that can turn a good deed into a punishable one if ignored.

Depending on the 401(k) plan you have, a team of outside experts might be helping the company’s HR staff with 401(k) plan administration, including record keepers, third-party administrators, investment fiduciaries and financial advisors. These advisors also may be helping employees with their own plan investments. But who is watching out for the company and the company’s owners as plan sponsors and trustees, and helping them do what they’re supposed to be doing?

As the plan sponsor, the company makes important business decisions about designing, adopting and terminating the plan. The business owners and company management, such as a corporation’s board of directors or an LLC’s managers, make those decisions. It is important that these decisions be documented with resolutions that the board of directors or managers formally adopt and maintain with the company’s other governance records.

Once the company adopts a 401(k) plan, the real work of regularly overseeing the plan’s administration begins. Some companies appoint a committee to oversee the administrative and investment functions of the 401(k) plan. These committees typically follow written rules or charters that company management adopts to provide a framework for performing their duties. In other cases, the business
owners individually take on this fiduciary oversight.

Administrative oversight responsibilities include the following activities:

  • Confirm distribution of 401(k) plan disclosures and other communications to participants
  • Review reports from the plan’s financial advisor, third-party administrator, record keeper, 3(38) fiduciary, and other service providers
  • Determine whether service provider performance is satisfactory
  • Review plan’s financial statements and 5500 filings for accuracy
  • Quarterly review of investment options performance
  • Conduct onboarding and annual employee education meetings
  • Review the plan overall to confirm employee participation, sufficiency of fidelity bond coverage,
    satisfaction with investment options and performance, and the reasonableness of plan costs based on benchmark data

This is not a complete list of responsibilities, but it provides a good example of the type of oversight that
company management and business owners must perform. The Department of Labor has published an article to guide businesses in administering their 401(k) plans.

Many of these oversight responsibilities should occur every quarter at least, but others will occur after year end. Consider preparing a calendar to track the key dates and activities and use your 401(k) plan’s fiscal year as a guide in developing the calendar. For example, for plans that have a year-end date of December 31, consider putting your annual review on the February calendar.

Business owners should be commended for offering 401(k) plans to help their employees save for retirement. But before assuming the administrative responsibilities that come with doing so, company management and business owners should understand the considerable effort it will take to do that job right and seek the advice of professional advisors when they need help.