While most are familiar with the term, many plan sponsors are uncertain of what it actually means to be a fiduciary. In fact, a recent JP Morgan survey stated 43% of company fiduciaries do not identify themselves as fiduciaries. This reflects the fact that many plan sponsors are uncertain about what a fiduciary exactly is.
There are a few types of 401(k) plans available to plan sponsors: the traditional 401(k), the Roth 401(k), the SIMPLE 401(k), and the Safe Harbor 401(k). Each plan has different benefits and drawbacks, but they all share one common feature: a requirement that the plan sponsor abides by that specific plan’s rules and regulations. Most 401(k) plans face an annual nondiscrimination test defined by the Internal Revenue Service (IRS), which ensures that the plan does not excessively favor highly compensated employees (HCEs) and that their contributions do not exceed the average contributions of non-highly compensated employees (NHCEs) by set limits. Failing to adhere to the IRS’s rules can risk the loss of the 401(k)’s preferable tax status and can be subject to penalties.
Offering a thoughtful retirement plan can provide many benefits to an organization. It can have a significant impact on the hiring and retention of key employees as well as improving employees’ retirement readiness. However, the retirement plan space is complex. Trying to develop and manage a plan while complying with the constantly evolving legal and regulatory environment is not easy. Plan sponsors are held to a number of regulatory and fiduciary obligations, and failure to advocate on behalf of its plan members’ best interests can be subjected to hefty civil fines and penalties. Many sponsors lack the expertise to manage their retirement plan and fulfill their fiduciary obligations. This is where the need for a retirement plan consultant arises. Learn the key areas of service that retirement plan consultants can provide and why many organizations choose to hire one.
Although ERISA doesn’t specifically require retirement plan sponsors to create and adhere to a written Investment Policy Statement, having an outlined statement in place can allow sponsors to efficiently run a plan consistent with ERISA requirements while fulfilling their fiduciary duties. An Investment Policy Statement will be unique for each organization based on the characteristics of the plan, but we have compiled a list of considerations for developing a well-crafted document.
In today’s volatile investing environment, selecting your company’s 401(k) or 403(b) plan investment options on your own can seem like more than a full-time job—not to mention potentially putting your organization at risk of litigation if these investments persistently fall short of their expected returns, have less than competitive fees or can’t be liquidated when employees retire. For many sponsors, shifting the fund selection process to an ERISA 3(38) investment manager can free up time and attention to focus on other aspects of the organization, managing employees, and many tough-to-outsource tasks. We review three key factors for hiring a 3(38) investment manager below.