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A Simple Guide for Meeting 401(k) Fiduciary Responsibilities

Eric Droblyen

February 27, 2024

Table Of Contents

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 responsibilities in the national spotlight. Unfortunately, this attention has done little to clarify these responsibilities for employers. This confusion is a big problem when you consider their important purpose – to protect the interests of 401(k) plan participants.

Employers have 401(k) fiduciary responsibilities due to their discretionary authority or control over plan management and assets. They are designed to ensure plan participants are not harmed by self-dealing or imprudent decisions by the employer or other plan fiduciaries. When a responsibility is not met, the responsible fiduciary can be found personally liable for restoring participant losses.

This liability is easy to avoid with some basic education. 401(k) fiduciary responsibilities are common sense generally. Here’s a guide for employers.



Under the Employee Retirement Income Security Act (ERISA), a person is a 401(k) plan fiduciary "to the extent that he exercises discretionary control or authority over plan management or authority or control over management or disposition of plan assets, renders investment advice regarding plan assets for a fee, or has discretionary authority or responsibility in plan administration." All 401(k) plans share a similar fiduciary hierarchy. The named fiduciary sits atop this hierarchy with the power to delegate all other roles. For most plans, the named fiduciary is the employer.

In Meeting Your Fiduciary Responsibilities, the Department of Labor (DOL) lists the general responsibilities of a 401(k) fiduciary as:

    • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
    • Carrying out their duties prudently;
    • Following the plan documents (unless inconsistent with ERISA);
    • Diversifying plan investments; and
    • Paying only reasonable plan expenses.

Below is more specific information about the major 401(k) fiduciary responsibilities, including how to meet them.

Pick a Diversified Menu of “Prudent” Funds

An employer’s investment-related fiduciary responsibilities boil down to picking a diversified menu of “prudent” funds that gives plan participants access to a broad range of financial markets. A prudent fund is simply a fund that meets its investment objective for reasonable fees.

Index funds – which are designed to track a market benchmark (e.g., the S&P 500 index) – can make prudent fund selection easy. This is true because comparable index funds (i.e., funds with the same market benchmark) from any of the leading providers – including Vanguard, Blackrock, Schwab, and Fidelity – offer similar returns for low fees. This uniformity makes it easy for employers to avoid “imprudent” funds that fail to meet their investment objective for reasonable fees. That’s in sharp contrast to comparable active funds – whose net-of-fee returns can differ dramatically.

Meeting the diversification requirements of ERISA section 404(c) is the key to offering plan participants access to a broad range of financial markets. These requirements are not difficult to meet. In fact, a simple 3-fund lineup that includes equity (stock), fixed income (bond), and capital preservation (money market or stable value) funds can do the trick.

Simple options for picking a diversified menu of prudent funds include:

Ensure Plan Administration is Timely and Accurate 

401(k) fiduciary responsibilities related to plan administration are a good news/bad news story for employers. First, the bad news. These responsibilities are numerous and complicated. They include:

The good news? A qualified 401(k) provider will do the heavy lifting, completing the most technical and time-consuming aspects of these tasks. A basic checklist can help employers ensure these tasks are completed on time.

Pay Reasonable 401(k) Fees from Plan Assets

When 401(k) fees are paid from plan assets, they reduce participant returns dollar-for-dollar. Over decades, the “cumulative effect” of 401(k) fees can cost a worker hundreds of thousands of dollars in retirement. Given the stakes, employers have a fiduciary responsibility to pay only "reasonable" fees from plan assets.

The problem? While this responsibility is clear, the definition of “reasonable” is not. ERISA does not define the word and government agencies only provide general guidance for evaluating 401(k) fees. The Department of Labor (DOL) suggests “establishing an objective process to aid in your decision making". This process should include an understanding of the fees and expenses you will pay and a review of those charges as they relate to the services to be provided and the investments you are considering.”

An “objective process” is generally understood to mean benchmarking a plan’s fees vs. comparable plans or industry averages. For an employer to benchmark their 401(k) fees vs. competing 401(k) providers, they can:

Employers should benchmark their 401(k) fees at least every 3 years.

Deposit Employee Contributions Timely

Employers have a fiduciary responsibility to deposit employee contributions (including any participant loan repayments) in their 401(k) plan as soon as these contributions can be reasonably be segregated from their general assets (the “general rule”), but in no event later than the 15th business day of the month following the month in which the contributions were withheld from employee wages. Small employers (100 or less employees) can meet the general rule automatically by depositing employee contributions no later than the 7th business day following the date of the withholding.

Maintain a Sufficient ERISA Fidelity Bond

Employers must be covered by an ERISA fidelity bond due to their discretionary control over the assets of their 401(k) plan. This bond protects 401(k) plan participants from dishonest acts by the employer. Generally, the minimum coverage must equal the lesser of 10% of plan assets or $500,000. Bonds are available from a surety or reinsurer named on the Department of the Treasury’s Listing of Approved Sureties.

Maintain Plan Records

ERISA includes document retention rules for employers. In general, plan records must be kept for a period of not less than six years after the filing date of the IRS Form 5500 created from those records. However, records necessary to a participant’s claim for plan benefits must be kept longer. These records must be kept “as long as a possibility exists that they might be relevant to a determination of the benefit entitlements of a participant or beneficiary.” This can mean indefinitely.

To meet this responsibility, I recommend employers maintain three files for plan records – a file to store documents that govern plan operation (a “Plan Document File”), a file for participant records (a “Participant File”), and a file for plan year information (a “Plan Year File”). This simple three file system should make it easy to access plan records if they are ever needed.

Hire a Qualified 401(k) Provider

Hiring a 401(k) provider is a fiduciary function. To meet this responsibility, employers must hire a qualified provider whose services and investments are provided at reasonable costs. In my view, this fiduciary responsibility is the hardest to meet due to the technical nature of 401(k) plans and how dramatically the administration services and investments offered by 401(k) providers can vary in terms of quality and price.

To make the job easier, I recommend employers follow a 2-step process when hiring a 401(k) provider:

    1. Determine the plan administration services required
    2. Use a checklist to compare 3 or more service providers

Once a 401(k) provider is hired, employers have an ongoing duty to “monitor” them – to ensure the provider is completing their assigned responsibilities competently, timely and for reasonable fees.

The Stakes Are High for 401(k) Plan Participants!

Confusion about 401(k) fiduciary responsibilities can leave employers vulnerable to exploitation by conflicted 401(k) providers with excessive fees, underperforming funds, and/or unnecessary services that put profit ahead of participant interests. When this happens, the consequences can mean big losses for plan participants and personal liability for plan fiduciaries.

These consequences are easy to avoid. 401(k) fiduciary responsibilities are common sense generally. When employers understand their basics, it can be easy to identify 401(k) providers with services, investments, and fees that make meeting them easy.