As an employer offering a 401(k) plan, it’s important to set up an annual review not only to avoid costly issues and liability exposure, but also to leverage strategies to better serve employees. Here are 5 key reasons to review your 401(k) plan in 2023.
1. Avoid Compliance Issues
Employers should review their 401(k) plan regularly to identify any areas of administrative exposure brought on from new legislative requirements or caused by internal distractions and challenges. In 2021, two major pieces of legislation, The SECURE Act and CARES Act, were signed into law during a time in which most businesses were operating in survival mode. As a result, in 2021 IRS penalties increased tenfold. And the repercussions resulting from noncompliance have never been higher. (1)
2. Provide Support for Financially Stressed Employees
Companies are looking for ways to help their employees deal with the financial burdens brought about by the pandemic. (2) A 401(k) plan can provide more than long-term retirement savings, it can also provide financial benefits including but not limited to:
- Financial wellness counseling
- After-tax savings strategies
- Student-loan repayment dollar-matching opportunities, and more
3. Minimize Administrative Liability
Plan reviews are an integral component of helping employers identify potential risk exposure related to retirement plan sponsorship. (3) It’s prudent to explore offloading liability by outsourcing plan sponsor responsibilities and risks. Over the past three years, the marketplace has experienced:
- A 250% growth rate in outsourced fiduciary 3(38) investment services
- A growing trend to transfer administrative duties to a 3(16) administrative service provider
4. Monitor Participant Fees
Plan sponsors have an obligation under ERISA to ensure that the fees paid by participants are reasonable for the services offered, which can be hard to manage when constantly balancing other priorities. This can easily be addressed through a plan review that takes into account the compensation of the recordkeeper, underlying investments, third-party administrators, and the financial advisor.
5. Assess Overall Plan Health
A common misconception of 401(k) is that once a plan is in place, no further involvement is required. That couldn’t be further from the truth! A 401(k) plan is dynamic, requiring ongoing updates to reflect legislative and regulatory rule changes, along with adopting new features that will better serve your employee demographic.
A plan review can allow you to:
- Assess your 401(k) plan health
- Determine a baseline on performance and identify areas for improvement
- Consider tools that may make a meaningful difference in your employees securing a better retirement.
How We Can Help
Scheduling the time for a 401(k) review can help improve participation, savings levels, and investment strategies for all involved. If you need help with a 401(k) review, reach out to me by emailing email@example.com so you can start 2023 on the right track.
Dan Shapiro is a retirement plan advisor and holds the Accredited Investment Fiduciary® and Certified Plan Fiduciary Advisor certifications. With over 30 years of experience in the industry, Dan guides his clients through the entire retirement plan process, from plan design to compliance to investment oversight. His goal is to provide his plan sponsor clients with the ability to offer the right retirement plan the right way to their employees—a plan they can be proud of. He is one of the original 100 Accredited Investment Fiduciary® practitioners in the United States and uses his knowledge and experience to implement best fiduciary practices to ensure employees have appropriate investments to choose from and employers have a well-documented fiduciary process in place to mitigate risk. Dan is known for taking the time to understand his clients’ unique goals and situations and applying his holistic approach to customize and develop tailored strategies to improve outcomes and take some of the plan sponsor burden off their shoulders.
When he’s not working, you can find Dan at the park and marina near his house training his Australian Shepherd. He cherishes his frequent FaceTime calls with his grown children who live in Israel. In fact, Dan and his wife, Rita, consider their proudest life achievement to be raising their two children, Ashley and Joshua, to be productive and principled adults. Dan and Rita love to entertain, especially when it includes making great food with the smoker and barbeque. To learn more about Dan, connect with him on LinkedIn.
Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).
(1) Retirement Learning Center. (2020, January 24). Secure Act Increases Late Filing Penalties. https://retirementlc.com/secure-act-increases-late-filing-penalties/
(2) Prudential. (2020). 2020 Retirement Plan Sponsor Pulse Survey. https://news.prudential.com/content/1209/files/2020PSPulseSurveyDCLandscape.pdf
(3) Fact Sheet EBSA Restores Over $3.1 Billion to Employee Benefit Plans, Participants and Beneficiaries, U.S. DOL, EBSA. (2020, October 29). https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/ebsa-monetary-results-2020.pdf