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. In 2019, the IRS released a final hardship rule 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.
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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 ($58,000 + $6,500 catch-up for 2021) – 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.
After the death of his beloved mother, Harry Houdini was desperate to contact her from beyond the grave with the help of psychic mediums – who claimed an ability to communicate with the dead. Mediums were very popular at the time, but it didn’t take long for Harry to discover they couldn’t do what they promised. Upset, Harry became determined to expose their lies to protect unwitting customers. Like mediums, some 401(k) providers make false claims. Their lies can easily go unnoticed to 401(k) fiduciaries due to the highly-technical nature of 401(k) services. However, believing these lies – and hiring the provider that makes them – can trigger severe consequences. They often mask excessive 401(k) fees or a lack of expertise that can increase fiduciary liability. If you’re a 401(k) fiduciary, identifying 401(k) provider lies is imperative to mitigating your plan liability. The good news? Most are easily debunked with some basic facts. I’d like to channel (pun intended) Harry Houdini by exposing four of the most common lies told by 401(k) providers today.
Over the past year, several new Internet-based 401k providers have launched in the small business retirement plan market. Led by tech entrepreneurs instead of industry veterans, these providers claim to slash the time it takes to establish a 401k plan using new technology. One says they can deliver a 401k plan in just 15 minutes! Here’s the problem. While technology might speed data collection and document delivery, it can’t reduce the amount of information 401k fiduciaries must supply a new 401k provider or guide 401k fiduciaries when picking 401k administration and investment options for their plan – the most time consuming steps in the 401k plan establishment process.
Making hasty choices when setting up a 401k can cost your business, or your employees, tens of thousands of dollars in unnecessary plan expenses. For this reason, it’s important you hire a 401k service provider that’s not only reputable, but also consultative. If a provider tells you they can setup your plan in minutes – run. Setting up a 401k plan that matches your company goals simply can’t be done using pre-filled, signature-ready forms.