A 401k plan is a popular retirement savings plan offered by many employers in the United States. It is a defined contribution plan where employees can contribute a portion of their pre-tax income, and employers may also contribute a matching amount or a fixed amount. The contributions grow tax-deferred until they are withdrawn in retirement. As an employer, it’s important to understand the responsibilities you have in running a 401k plan and ensure that you are fulfilling them.
Plan Design and Documentation
Employers must design their 401k plan to comply with IRS and Department of Labor regulations. The plan document should outline the rules for eligibility, contribution limits, vesting schedules, and distributions. It is essential to review the plan document periodically and update it as needed to ensure compliance with changing regulations.
Fiduciary Responsibility
Employers who sponsor a 401k plan are fiduciaries, meaning that they have a legal obligation to act in the best interests of the plan participants. This includes selecting and monitoring investment options, ensuring that fees are reasonable, and providing education and information to participants.
Investment Options and Fees
Employers must select and monitor investment options offered in the plan. The investment options must be diversified and appropriate for the plan participants. Employers must also ensure that fees for investment options are reasonable and that participants are not paying excessive fees.
Employee Education
Employers have a responsibility to provide education and information to plan participants to help them make informed decisions about their investments. This includes providing information on investment options, fees, and the importance of saving for retirement.
Compliance Testing
401k plans are subject to annual compliance testing to ensure that they do not discriminate in favor of highly compensated employees. Employers must work with their plan administrator to perform these tests and make necessary corrections if the plan fails the test.
Plan Administration
Employers must ensure that their 401k plan is properly administered, which includes monitoring contributions, coordinating with the plan administrator, and ensuring that participant accounts are accurate. Employers must also ensure that they are complying with reporting requirements, such as filing Form 5500 annually.
Employee Contributions and Matching
Employers must ensure that employee contributions are being deducted correctly and that any employer-matching contributions are made on time. Employers must also ensure that contribution limits are not exceeded and that vesting schedules are correctly applied.
Plan Termination
If an employer decides to terminate a 401k plan, they must ensure that all participants are notified and that assets are distributed according to the plan document. Employers must also ensure that any outstanding loans are repaid or rolled over to another qualified plan.
Hiring a Plan Administrator
Employers may choose to hire a plan administrator to handle many of the administrative tasks associated with running a 401k plan. The plan administrator can help with investment selection and monitoring, compliance testing, employee education, and plan administration. Employers must ensure that the plan administrator is qualified and that their fees are reasonable.
Employee Privacy
Employers must protect the privacy of plan participants’ personal and financial information. This includes ensuring that participant data is secure and confidential and that only authorized individuals have access to the information.
nVest Advisors is the perfect financial partner for your small business.
Running a 401k plan is a significant responsibility for employers. Employers must ensure that they are complying with regulations, acting in the best interests of plan participants, and providing education and information to help participants make informed decisions about their retirement savings. Employers may choose to hire a plan administrator to help with many of the administrative tasks associated with running a 401k plan, and a plan advisor (that’s us) to handle most of the rest of those duties, such as due diligence on the investment options, educating employees, and ensuring the plan is compliant. But ultimately, the employer remains responsible for ensuring that the plan is properly designed and administered. By fulfilling their responsibilities, employers can help their employees save for a secure retirement.
As a small business ourselves, nVest Advisors is deeply committed to helping small businesses and their teams thrive and prosper. From financial planning for both the owners and employees of the business to fiduciary management of your SEP IRA, SIMPLE IRA, 401(k), 403(b), HSA, college savings plans, and other benefit options, we strive to be an integral part of your team’s financial well-being. And being a small company ourselves, we’re small enough to develop a close working relationship with your company and have the resources and investment partners to handle even the largest 401(k) needs.
If your company is looking for a competitive bid for your current programs or needs to start a new benefits plan from scratch, we’d love to partner with you. Feel free to schedule a complimentary one-hour due diligence meeting with CEO Jeremy Torgerson, to discuss your needs.
