The Frugal Fiduciary Small Business 401(k) Blog
Get the latest industry news, deadlines and tips you need to know to help tackle your fiduciary responsibility needs.
The use of revenue sharing by 401(k) plans has declined sharply over the past five years. That means more 401(k) plans are paying “direct” fees – which are deducted from participant accounts – to their 401(k) provider instead. That’s good news because direct fees are more transparent and fair than revenue sharing payments – making it easier for 401(k) plan sponsors to keep their 401(k) fees in check.
The Employee Retirement Income Security Act of 1974 (ERISA) requires certain individuals who are responsible for the day-to-day administration of a 401(k) plan to be covered by a fidelity bond. The purpose of the bond is to protect 401(k) plan participants against losses caused by acts of fraud or dishonesty. We get of a lot of questions about ERISA fidelity bonds from 401(k) plan sponsors – who must purchase a bond on behalf of their plan. Below is a FAQ with answers to the most common questions we receive. If you are a 401(k) plan sponsor, you can use our FAQ to understand the basics about your bonding responsibility.
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One of most effective ways an employer can persuade their employees to participate in a 401(k) plan is by matching a portion of their pre-tax or Roth 401(k) salary deferrals. This is unsurprising when you consider matching contributions are like a guaranteed return on salary deferrals - or “free” money.
I meet a lot of 401(k) plan sponsors unsure they’re paying “reasonable” fees to their 401(k) provider for ”necessary” services – an important 401(k) fiduciary responsibility. I can hardly blame them when I consider the broad range of fees charged by 401(k) providers today.
401(k) plans that only cover business owners - and their spouses – are commonly called “solo” 401(k) plans. Because they don’t cover non-owners, solo 401(k) plans aren’t subject to many of the most complex 401(k) plan qualification requirements – including annual nondiscrimination testing. That makes these 401(k) plans easy to administer while allowing plan participants to receive large annual contributions - up to the 415 limit ($55,000 + $6,000 catch-up for 2018) – without restriction. These benefits have made solo 401(k) plans a popular retirement plan choice for business owners that want to save more than personal IRAs allow.
On March 15, 2018, the Fifth Circuit Court of Appeals invalidated the Department of Labor’s (“DOL”) Fiduciary Rule in a 2-1 decision. If the DOL does not request a rehearing within 45 days, the regulation will die. If that happens, the rules for 401(k) investment advice that existed before the Fiduciary Rule will return. That means some financial advisors – basically, brokers and insurance agents - will once again be able to give conflicted investment advice by recommending high-priced 401(k) investments that pay them rich commissions over less expensive - but comparable - alternatives on May 7, 2018.