401(k) Management Best Practices to Avoid Regulatory Fines and Potential Lawsuits

When talking with businesses, I often notice gaps in their 401(k) management, which can lead to significant regulatory fines and lawsuits. The good news is these risks are easily avoidable. If you believe there is room for improvement when it comes to your fiduciary responsibilities, then read on.

In this post, I’ll discuss a simple, yet comprehensive process to determine where you are following 401(k) fiduciary responsibility best practices and discover areas that need improvement. Your 401(k) management evaluation process should focus on the following six categories: fiduciary governance, fee structure, plan design, investment process, participant support, and provider management.

Fiduciary Governance

The management of your 401(k) plan is extremely important. A governance committee that meets consistently should be established and consist of company members, including but not limited to, the business owner or president, the CFO, a HR business partner, and perhaps a non-executive. The committee should have a written charter with goals and objectives and keep written documentation of their meetings. Training should also be held for current and future committee members, so they understand the responsibility of their role(s).

401(k) Management Fee Structure

Another important part of your plan to consider is the fee structure. Are the 401(k) management fees tracked, monitored, and benchmarked against market trends to make sure you are offering a competitive plan? Are they reasonable for the value you receive? Are they packaged into the funds, or charged as a separate item to improve transparency? These are all questions you should consider when reviewing your company’s 401(k) plan.

401(k) Plan Design

401(k) plans are traditionally more successful when a greater number of associates participate and save at a higher rate; therefore, the design of your plan is key. It is important to know what defaults you have established within the plan for employees when you initially set it up. For instance, here are a few questions you should answer because your answers could affect your fiduciary responsibilities and 401(k) compliance under evolving regulations. Do you auto enroll associates? Is there a default contribution rate set? If so, is it set at an appropriate and meaningful level? Do you have auto escalations built into increase your employees’ contributions every year? Automation is becoming more and more important to a successful 401(k) management, so reviewing and adjusting your plan periodically is essential to stay compliant.

Investment Process

The investment process is yet another important piece of your 401(k) plan. How is the fiduciary duty structured? Do you have an investment policy? How often is the investment policy reviewed? How often are your funds reviewed? All are important items to consider.

Participant Support

Participant support is another key factor of proper 401(k) management. Many employees depend on these resources and tools to help them make educated decisions on their selections. What does participant support look like for your plan? Do employees have access to a fiduciary advisor, and can they meet with that advisor in person or virtually?

401(k) Plan Provider Management

Have you searched for a new service provider for your company’s 401(k) plan in the last three to five years? Did you know that you could save some money by shopping an older plan? What cybersecurity features are in place to protect your employees?  These are all important considerations.

Regardless of when you set up your company’s 401(k) plan, I suggest periodically evaluating your plan’s features and benefits to determine where you might be able to improve. I understand this is easier said than done, so to help you test your 401(k) management best practices and see how it scores, our 401(k) team designed a survey, which you can complete to get a free assessment.

Just click on the button below to submit your complimentary 401(k) fiduciary responsibility survey, and a Hilb Group 401(k) retirement plan advisor will contact you to review your results. During the review, we can assist in identifying that your 401(k) plan is structured appropriately, designed correctly, and managed in a way that encourages the participation of your associates.

Should you have any questions, feel free to contact me at jsampson@hilbgroup.com.