A 401k plan is a tax-qualified, defined contribution pension plan. For every qualified 401k plan, a fiduciary(s) must be named and requires strict compliance in keeping order to maintain status.
As an employer or corporate officer that provides a 401k plan, you may be the named “fiduciary” and not even realize what you could be personally liable for as most employers assume that by delegating certain responsibilities to third party administrators or custodians such as insurance companies that you have insulated yourself from any liability. This is far from reality. Let us explain.
If you are named in the plan document as the fiduciary (trustee and/or plan administrator), the bull’s eye is on you. If an employee or former employee decides to sue the company and its named fiduciaries, you are a potential defendant in the case. There are a number of reasons why employees may sue their employer but two most popular reasons are the type of investments and the associated fees.
The choices of investments may be too great, there may be a lack of financial advice and guidance for making their educated choices in either to make necessary changes or continue status quo. With fees, the cost of the investments, including expense ratios, revenue sharing and commissions typically impact increase the cost.
Whether the employee has a case or not, you are drawn into time consuming litigation and may be financially liable for the expense.
The proper protection and action steps are to formally name an expert as a named fiduciary. A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. A plan’s fiduciaries will include the trustee, investment advisers, and plan administrator exercising discretion in the administration of the plan, all members of a plan’s administrative committee, and those who select committee officials such as attorneys, accountants, etc. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan. Specific important responsibilities are subject to standards of conduct because they are acting on behalf of the participants of the plan. Such responsibilities include acting solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them; carrying out their duties prudently; following the plan documents; diversifying plan investments; and paying reasonable plan expenses.
Make sure you have written policies and procedures, that you’re compliant with 404(c) and have proper bond coverage. Lastly, we can’t stress enough to document, document, document all actions and decisions you made in managing your 401k plan.
If the so named fiduciary is not adhering to these above requirements; you have no documented evidence to support your decisions. Review your documents now and call a reliable retirement plan provider such as Caldwell Trust Company.
About Caldwell Trust Company
Caldwell Trust Company is an independent trust company with offices in Venice and Sarasota, Florida. Established in 1993, the firm currently manages over $800 million in assets for clients throughout the United States. The company offers a full range of fiduciary services to individuals, including services as trustee, custodian, investment adviser, financial manager and personal representative. Additionally, Caldwell manages 401(k) and 403(b) qualified retirement plans for employers.