The Frugal Fiduciary Small Business 401(k) Blog
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401(k) or SIMPLE IRA? Whether you’re just looking to confirm a choice or haven’t even begun to make one, you know this is an important decision. The kind of plan you pick could have an enormous impact on the finances of everyone involved in your business.
Employers have a fiduciary responsibility to pay only “reasonable" fees from the assets of their 401(k) plan so excess fees do not reduce participant investment returns needlessly. To confirm 401(k) fees are “reasonable," employers must benchmark them – basically, compare the administration and investment fees charged by their 401(k) provider to the fees charged by competing providers or industry averages. If you're responsible for keeping your company's 401(k) fees in check, I recommend you benchmark them on an “all-in” basis.
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401(k) fees paid from plan assets reduce participant returns dollar-for-dollar. These lost earnings can dramatically erode a 401(k) account account balance over time, so employers have a fiduciary responsibility to pay only “reasonable” fees – so excess fees do not reduce participant returns needlessly. To evaluate the reasonableness of their 401(k) fees, employers must benchmark them – basically, compare the administration and investment fees charged by their 401(k) provider to the fees charged by competing 401(k) providers. I recommend employers do so on an “all-in” basis.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 in response to the COVID-19 crisis. The Act allows – but does not require - employers to loosen the participant distribution and loan provisions of their 401(k) plan and any Coronavirus-affected individual to reduce the tax burden of most 401(k) distributions. 401(k) participants should understand their options under the CARES Act as soon as possible – this economic relief is temporary.
Without question, the COVID-19 pandemic has created a great deal of economic uncertainty. In response, we have received numerous crisis-related 401(k) questions from small business owners. In general, they want to know their options for cutting (or delaying) plan expenses and participant options for taking a 401(k) distribution and loan. This FAQ includes answers to many of the most common questions we have received.
Safe harbor 401(k) plans are the most popular form of 401(k) sponsored by small businesses today. They can help business owners maximize the contributions made to their personal account by automatically passing the ADP/ACP and top heavy nondiscrimination tests. However, to achieve safe harbor status, a business must meet certain contribution and participant disclosure requirements. For many owners, this trade-off is worth the cost. Here’s why: