Managing Your 401(k) In Line with Regulatory Requirements

As a plan sponsor, managing your plan in the best interests of your employees in a compliant manner is essential. Some key items to understand is who is a fiduciary at your company (any employee involved in overseeing or managing the plan usually is) and the actions, management, and services you can leverage to run an efficient, well-managed retirement plan.

Below provides information on important areas and guides you may download for more in-depth considerations:

ERISA 404(c)

ERISA 404(c) states that plans must offer a broad range of investment options with different potential for investment risk and return, and we design our 401(k) plans to be ERISA 404(c) compliant which reduces your fiduciary liability. Moreover, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk. ShareBuilder 401k offers a diverse lineup of ETFs which allows employees to select multiple funds to diversify their account sufficiently and potentially avoid large losses. Download our 404(c) guide for more information.

ERISA 3(38) vs. ERISA 3(21) Services

Many plan sponsors work with a Registered Investment Advisor (RIA) to support their plan and the management of the investment offerings made available to eligible employees. Most providers do not take on a formal fiduciary status in servicing your company plans, but ERISA 3(38) providers do. ERISA 3(38) advisors can limit your plan sponsor liabilities and provide a high-level of investment due diligence and expertise in determining your fund roster. Click here to learn more.

Retirement Plan Committees

Starting a 401(k) committee for your plan can help reduce your liabilities and help ensure a well-run 401(k) plan for your company. The main purposes of a 401(k) committee are to ensure strong plan oversight and define processes so your plan is managing all the required duties and responsibilities. Learn more about 401(k) committees and how it can benefit your plan.

Qualified Default Investment Alternatives (QDIA)

For auto-enrolled employees or those who roll other monies in, if they haven’t selected an investment direction, QDIA puts money in an appropriate model portfolio, which also protects the employer from a potential employee complaint. All ShareBuilder 401ks are installed with QDIA in place from the get go.

Fiduciary Roles of Advisors/Vendors

While offering a 401(k) is a great benefit, more often than not some business owners and/or your employee administrators are unaware of at least some of the duties they’re required to manage and the fiduciary role they take on. Employers are also often unclear if any of their 401(k) providers share in their duties and risk.

You may work with or choose to work with a Registered Investment Advisor (RIA) that assumes either an ERISA 3(38) or ERISA 3(21) status. These services support the required monitoring and selection of your investment roster. While they may seem similar, the ERISA 3(38) advisors assumes a formal fiduciary role for your company that can save you time, energy, and protect you from liabilities.

All ShareBuilder 401k plans automatically include ERISA 3(38) services and coverage. Click here to learn more.

Reviewing and Managing 401(k) Costs

As part of a company’s fiduciary duties, the regulation requires that fees charged to a plan be “reasonable”. After careful evaluation during the initial provider selection, the plan’s fees and expenses should be monitored to determine whether they continue to be reasonable and if a switch or other negotiations are needed. Ensuring that you understand all your costs for services, how they are being charged, and benchmarking them on a regular basis to make sure you have a fair priced plan are all good practices.

When it comes to investing, costs matter and lower is typically better. The more spent in investment expenses, the less remains invested in the markets to build for retirement.

Complex and hidden fees can make the actual cost of your 401(k) plan difficult to calculate. Investment expenses typically are the core cost driver of your 401(k) plan. Moreover, the fund expenses are generally the predominant investment expense. Services beyond the fund expense itself may be bundled into your fund costs that your participants pay. Sales and marketing, recordkeeping, custodial services, education and/or investment management costs may be included in fund expenses or charged for separately. As a benchmark, we recommend keeping all-in investment expenses (fund expenses inclusive of those services mentioned above) less than 1%. Click here to learn how you can uncover the total cost of ownership.