The Frugal Fiduciary Small Business 401(k) Blog
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Happy Holidays from the Frugal Fiduciary! As 2020 comes to a close, we looked back through this year’s blogs to find the most read. It turns out our most popular blogs related to the following topics: Plan design – Basics about popular 401(k) features, including the factors business owners should consider when evaluating them for their plan. Plan establishment – The differences between popular retirement plan types, including the tax credits and deadlines for establishing either plan. Plan administration – The major 401(k) plan administration tasks, including their deadlines for completion. Plan legislation – Summaries of major retirement plan legislation that took effect in 2020, including the SECURE and CARES Acts.
On October 27, the Ways and Means Committee Chairman Richard E. Neal (D-MA) and Ranking Member Kevin Brady (R-TX) introduced the Securing a Strong Retirement Act of 2020 to “help a greater number of Americans successfully save for a secure retirement.” In general, I like this bipartisan bill – which builds upon the SECURE Act of 2019. My favorite provision would require 401(k) plans to benchmark the investment returns of Target-Date Funds (TDFs) based on Department of Labor (DOL) standards.
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The priciest thing that most people will buy in their lifetime is retirement. Perhaps you’ve never thought of “buying” retirement, but that’s exactly what you do when you contribute to a 401(k) plan – you’re saving now to afford income in retirement. When you consider that income may need to last 10, 20, even 30 years, it’s easy to understand why retirement is not cheap.
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.
Inappropriate investment selection is one of the top three reasons why 401(k) fiduciaries are sued today. In my experience, employers can easily avoid these lawsuits by having a clear understanding of their investment-related 401(k) fiduciary responsibilities. These responsibilities are surprisingly basic. They boil down to selecting enough “prudent” investments to permit any plan participant to sufficiently diversify their account – to minimize their risk of unrecoverable losses. A prudent investment is simply one that meets its investment objective for reasonable fees. I’ve never seen a leading index fund from providers such as Vanguard, Fidelity, or Schwab fail to fit this bill. For that reason, I consider these funds to be indisputably prudent 401(k) investments.
On December 20, 2019, the President signed the Further Consolidated Appropriations Act, 2020 into law. This year-end spending package included the most extensive retirement plan legislation in over a decade - the Setting Every Community Up for Retirement Enhancement (SECURE) Act. After the SECURE Act was passed by the House, I judged the bill a mixed bag of good, bad, and ugly – the good representing welcome reform, the bad representing undue complexity, and the ugly representing handouts to the financial industry. That view has not changed now that the bill is law.