During the 401k plan design process, we get a lot of questions from small business 401k fiduciaries about employee eligibility. They want to know when they should let new employees into their 401k plan and their options for keeping certain employees – generally the ones that won’t participate – out.
Small businesses can have dramatically different goals for their 401k plan. While some want to maximize key employee contributions, others want to incentivize rank-and-file contributions. 401k fiduciaries have nearly endless options for meeting these goals – many with very different expenses. The process of matching 401k goals to available options is called 401k plan design.
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Meaningful 401k fee data is hard to come by – and that’s a big problem for small businesses. Sponsors of small business 401k plans have a fiduciary responsibility to keep 401k fees reasonable for plan participants. When this responsibility is not met, the consequences for 401k fiduciaries can be severe - including personal liability.
Critics of the DOL’s proposed fiduciary rule, also known as the "conflict of interest rule for investment advice," argue that the rule will make investment advice too costly for many 401k plans. If the critics are right, this issue would be a compelling reason to scuttle the rule – studies have shown that professional advice can help 401k participants increase investment returns. An Aon Hewitt study found that median investment returns for 401k participants using target-date funds, managed accounts and other investment advice were 3.32% greater than returns earned by participants that picked investments themselves.
Service intended to help small businesses take current DOL fee disclosure regulations a step further.
401k plans are designed to help workers save for retirement. Unfortunately, 401k accounts often reduced prior to retirement by loans that are not repaid, hardship withdrawals, and cash-outs resulting from a job change. Experts call these reductions “leakage.” 401k leakage can greatly reduce a worker’s