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The Eight 401(k) Fiduciary Duties You Need to Know


When you start a 401(k) for your company, there are eight core duties you take on to ensure your program is managed to benefit all your employees. They are pretty common sense, but important to know as a breach can leave you personally liable to make the 401(k) plan whole for losses caused by a breach.

Sounds kind of scary, but there is no reason it needs to be. With a little education, it should be pretty easy to stay well within the rules.

Drum roll, please… the eight core obligations are:

  1. Put your participating employees’ best interests ahead of the company’s and control administration expenses. Things to do: Offer diverse investment options, ensure employees have easy access to the plan and guidance materials, and keep costs low both for participants and your business costs.
  2. Make sound decisions with care that a prudent person would under similar circumstances around your retirement plan. Things to do: Use good judgment and weigh your decisions before you act – pretty straightforward.
  3. Diversify investments to minimize risk of large losses. Things to do: Ensure you have an Investment Policy Statement and your investment options cover major asset categories across stocks, bonds, and cash (all ShareBuilder 401k plans automatically do both). Offering model portfolios that automatically diversify based on various employee risks and time horizons are good to offer.
  4. Ensure you are aware of what any co-fiduciaries are managing and use care to prevent breaches. Things to do: Review your plan assets and payroll submissions on a regular basis and look for any large dips in balances.
  5. Hold plan assets within the jurisdiction of the US courts. Things to do: As long as you have a respected, well-known provider, you are probably okay. Always ask your provider to be sure.
  6. Purchase a fiduciary bond in the amount of 10 percent of funds handled up to $500,000 maximum bond ($1M if holding employer securities). Things to do: make sure you have one and that it covers the appropriate amount.
  7. Run the plan in accordance with how you set it up and is fully outlined in your Plan Document you received when you started the plan. Things to do: If you make any changes to your plan, ensure you have your Plan Document amended. It’s better to do this before implementing the change.
  8. Don’t tamper with assets in your company’s 401(k) program for any business needs (prohibited transactions). Things to do: Using the assets of the plan (assets of your employees) for company needs is not an option even if you intend to pay it back. You of course can manage your own 401(k) account at any time and there is often a loan option from your individual account if you need emergency cash.

If you ever have questions here, just give us a ring.

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