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In the workforce today, employers regularly provide employer-sponsored retirement plans for employees. In fact, prospective employees often look for retirement plan opportunities within the list of job opening benefits. According to the American Benefits Council, over 656,200 retirement plans cover over 100 million participants in the United States. Voters nominated tax incentives for employer-sponsored retirement plans as the most important incentive of the decade.

As an employer, providing an employer-sponsored retirement plan to your employees is likely a priority. However, defined contribution retirement plans – such as the 401k – demand hefty legal responsibility. Unfortunately, many business owners do not fully understand these responsibilities.

Below, we provide a helpful guide for employers seeking to accurately navigate 401k employer responsibilities.

What are Fiduciary Responsibilities?

Who is a Fiduciary?

The Department of Labor offers a helpful definition:

Many of the actions involved in operating a [retirement] plan make the person or entity performing them a fiduciary. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control. Providing investment advice for a fee also makes someone a fiduciary. Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title.

Not every action performed on an employer-sponsored retirement plan is considered fiduciary. For example, simply developing a specific benefits package or terminating a plan are not fiduciary actions. The Department of Labor describes fiduciary responsibilities as actions performed on behalf of retirement plan participants and their beneficiaries, subject to standards of conduct under the Employee Retirement Income Security Act of 1974 (ERISA).

Acting in the interest of plan participants includes specific behaviors:

  1. Careful management of duties
  2. Adhering to plan documentation (unless inconsistent with ERISA)
  3. Diversifying plan investments
  4. Paying only reasonable plan expenses
  5. Acting solely in the interest of plan participants

Fiduciaries are called to a high standard and held responsible to establish a documented process for investment decisions. If an employer lacks the expertise needed to accurately carry out investments and other important retirement plan functions, he or she should hire professional knowledge to assist with these tasks.

Therefore, actions taken regarding the employer-sponsored retirement plan must be made with the exclusive purpose of providing benefits to participants and their beneficiaries.

A Checklist of 401k Employer Responsibilities

General Guidelines

  1. Your plan document must comply with Internal Revenue Code requirements
  2. Your plan must be administered to follow its predetermined terms
  3. Regularly review your plan to ensure that it is continually operating according to predetermined, law-abiding terms

 Adoption Agreement Guidelines

Adoption agreement guidelines come into play if you purchase a pre-approved plan. Essentially, the adoption agreement supplements the basic plan document, becoming part of the plan. Therefore, understanding your adoption agreement benefit options is important.

These may include:

  1. When employees are eligible to participate in the retirement plan
  2. The types or amounts of authorized plan contributions
  3. How employer contributions are divided among plan participants
  4. When and how benefits are paid
  5. When participants are vested

 Pre-Approved Plan Responsibilities

A list of specific responsibilities accompanies the purchase of a convenient, pre-approved retirement plan.

  1. Understand what fees tie to the purchase of your plan
  2. Keep the IRS issued opinion from your plan
  3. If plan amendments are sent by the pre-approved plan provider, sign these in a timely manner and send to the plan administrator
  4. Inform your plan provider if you make changes to your business, employees, or compensation or need to make changes to the predetermined plan terms

 Traditional Plan Responsibilities

Of course, a list of specific responsibilities also accompanies the initiation of a traditional retirement plan. As a plan provider, you are held responsible to communicate regularly with your plan service provider or payroll department for:

  1. New hires, terminations, or compensation changes
  2. Payroll compensation amounts for all plan participants
  3. Data determining eligibility and benefit payments
  4. Data necessary to identify highly compensated employees
  5. Terms for defining employee contributions, payments, and loans
  6. Any plan amendments

 A List of General Retirement Plan Tasks

A variety of administrative tasks accompany employer-sponsored retirement plans. Whether you perform these duties or delegate, a clear understanding of administrative expectations is important!

  1. Enforce predetermined terms of participation, contributions, and distributions
  2. Provide required plan notices to all participants
  3. File necessary forms/ documents with the IRS
  4. If testing is required, conduct it in a timely manner and correct test failures.
  5. Maintain records of participant accounts
  6. Invest in plan funds and determine fees, if associated
  7. Ensure the plan remains in compliance – if it becomes non-compliant, bring the plan back to compliance

 Ongoing Maintenance Responsibilities

Finally, completing these maintenance tasks ensures continued tax benefit eligibility.

 1. Review service provider reports:

  • evaluate allocation report for contribution errors
  • analyze the distribution report to ensure timely member participation (meeting minimum distribution requirements and payment consent)

2. Review participant loan details:

  • ensure that loans were made according to plan terms
  • make certain that every participant’s account balance supports the loan
  • confirm that every participant’s loan repayments are timely
  • verify that all documents relating to hardship withdrawals are kept

3. Review your plan’s predetermined terms to ensure that you are following them carefully

4. Pursue an independent plan review for an outside perspective

DHJJ Financial

At DHJJ Financial, we understand that managing employer-sponsored retirement plans can be complicated. While some business owners may have the expertise and time to properly manage a plan’s responsibilities, others need professional assistance.

This is where our team comes in. Our team of advisors offers fund selection, monitoring, and education for your company’s 401k plan. Our goal is to allow your employees to choose the best investments for themselves – while identifying cost-saving opportunities for your organization.

To inquire further about how our team of advisors could assist your company in selecting and managing an ideal retirement plan, feel free to reach out at 630.420.1360 or via our online contact form. A team member will be in touch right away.


Let’s Get Started

Have questions? Want to learn more about how DHJJ Financial Advisors can help you with wealth management? We’d be happy to discuss your situation.

Or call us:
630 420 1360

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