The Frugal Financial Small Business 401(k) Blog
Get the latest industry news, deadlines and tips you need to know to help tackle your fiduciary responsibility needs.
You’ve been taxed with the responsibility of setting up a retirement plan for your tax exempt organization and now you’re trying to decide between a 403(b) or a 401(k) plan. You’ve Googled, you’ve read, you’ve cringed at the technical language presented to you, desperately trying to understand the differences. Been there, done that.
According to AARP, Americans are 15 times more likely to save for retirement when they can do so by payroll deduction through a 401(k) or other employer-sponsored retirement plan. However, while most large businesses – companies with more than 100 employees – sponsor a retirement plan, 51 to 71 percent of small businesses don’t. Because workplace retirement plans make savings – and in turn, a comfortable retirement – dramatically more likely for workers, increasing this percentage is essential.
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If you're a 401(k) plan sponsor, you have a fiduciary responsibility to only pay reasonable plan fees and expenses from plan assets. Keeping 401(k) plan fees in check is one of your most important fiduciary responsibilities because even small excessive fee amounts each year can substantially reduce a participant nest egg over decades of saving. Excessive 401(k) fees can also mean severe consequences for you - including personal liability.
On June 9, the Department of Labor's (DOL) Fiduciary Rule took effect and upgraded every stock broker and insurance agent with a 401(k) client to a plan fiduciary under ERISA. However, there is a catch – while these financial advisors were made ERISA fiduciaries on June 9, the DOL won’t “pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions” until January 1, 2018. This transition period gives newly-minted fiduciaries time to fully comply with the rule – which many advisors did not expect to be implemented.
If you participate in a 401(k) plan, you should understand the rules for withdrawing money from your account – otherwise known as taking a distribution – even if you don’t plan to touch this money for decades. 401(k) plans have restrictive distribution rules that are tied to your age and employment status. If you don’t understand your plan’s rules, or misinterpret them, you can pay unnecessary taxes or miss distribution opportunities.
If you’re a small business 401(k) plan sponsor considering the purchase of another company, the last aspect of the deal you’re probably considering is the seller’s 401(k) plan. However, it’s important for you to have a strategy for that plan in place before your deal is closed. Otherwise, you could be stuck with a 401(k) plan that includes costly protected benefits or uncorrected defects.