The Frugal Fiduciary Small Business 401(k) Blog
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If your 401(k) provider is an insurance, mutual fund or payroll company, there is a good chance your 401(k) fees are too high. If you’re a business owner, you have the power to lower them, but you may need to switch 401(k) providers to do it. This move can seem daunting if you have never done it before.
One of my favorite Warren Buffet investing principles is “never invest in a business you cannot understand.” I think the rule of thumb is helpful in mitigating risk. If you’re a small business owner, I recommend you extend this principle to managing your 401(k) plan – never hire a 401(k) provider you cannot understand. What you don’t know about your provider can hurt plan participants and increase your fiduciary liability
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To meet retirement goals as affordably as possible, 401(k) participants must do two basic things – save early and often and invest appropriately. To invest appropriately, participants must construct - and maintain – an investment portfolio that includes a diversified mix of investments based on their time horizon (time to retirement) and risk tolerance. An appropriate portfolio balances the participant’s growth potential with risk of losses. Striking this balance is important. Otherwise, a participant could miss out on returns by investing too conservatively when young or sustain unrecoverable losses by investing too aggressively when older.
A 401(k) plan may, but is not required to, allow participants to take a hardship distribution in times of financial stress. This type of 401(k) distribution can be a financial lifeline when someone has nowhere else to turn for cash. Last year, the IRS released a proposed regulation that made several changes to the 401(k) hardship rules, generally relaxing how and when these distributions may be taken. Both employers and 401(k) participants should understand how the regulation will affect their retirement plan.
The Employee Retirement Income Security Act of 1974 (ERISA) requires certain individuals who are responsible for the day-to-day administration of a 401(k) plan to be covered by a fidelity bond. The purpose of the bond is to protect 401(k) plan participants against losses caused by acts of fraud or dishonesty. We get of a lot of questions about ERISA fidelity bonds from 401(k) plan sponsors – who must purchase a bond on behalf of their plan. Below is a FAQ with answers to the most common questions we receive. If you are a 401(k) plan sponsor, you can use our FAQ to understand the basics about your bonding responsibility.
401(k) plans that only cover business owners - and their spouses – are commonly called “solo” 401(k) plans. Because they don’t cover non-owners, solo 401(k) plans aren’t subject to many of the most complex 401(k) plan qualification requirements – including annual nondiscrimination testing. That makes these 401(k) plans easy to administer while allowing plan participants to receive large annual contributions - up to the 415 limit ($55,000 + $6,000 catch-up for 2018) – without restriction. These benefits have made solo 401(k) plans a popular retirement plan choice for business owners that want to save more than personal IRAs allow.