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.
To meet ERISA reporting requirements, most 401(k) plans must file a Form 5500 annually. This form is designed to disclose certain plan-related information to the Federal government and plan participants. There are three versions of the Form 5500, each with different filing requirements. In general, the largest 401(k) plans have the most detailed - and costly – filing requirements.
According to the IRS, one of the most common mistakes that employers make when administering their 401(k) plan is allocating plan contributions to participant accounts using the wrong employee compensation. Usually, this mistake involves the employer excluding forms of compensation (e.g., bonuses, commissions, or overtime) that the definition of compensation specified in their plan document includes – shortchanging plan participants.
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Over the past decade, several high-profile 401(k) fee lawsuits and DOL efforts to implement a fiduciary standard for professional investment advice have put 401(k) fiduciary responsibility in the national spotlight. Unfortunately, this attention has done little to help employers understand and meet their 401(k) fiduciary responsibilities. This confusion is a big problem because employers risk personal liability when these responsibilities are not met.
In a recent study, we found 79% of our small business clients pay 100% of their 401(k) administration fees from a corporate bank account – not plan assets. I am confident that percentage is higher than average because most 401(k) providers don’t give 401(k) sponsors that opportunity. Instead, they force sponsors to pay at least a portion of their 401(k) admin fees from plan assets by limiting plan investment options to funds that pay them hidden 401(k) fees like revenue sharing and/or annuity wrap fees.
Bar none, profit sharing contributions are the most flexible type of employer contribution a company can make to their 401(k) plan. These contributions are not only discretionary, but they can be made to any eligible plan participant – even if the participant fails to make 401(k) deferrals themselves. They can also be allocated using dramatically different formulas – allowing employers to meet a broad range of 401(k) plan goals with them.