At first glance, taking on fiduciary responsibilities for an employer-sponsored retirement can be a daunting task.
After all, reviewing fees and policy statements, engaging in formal fiduciary training, vetting and replacing fund managers, overseeing plan audits, and handling compliance issues – all obligations under the plan fiduciary umbrella – are important necessary tasks.
That’s why getting a solid grip on the most important obligations of a 401k plan fiduciary is job one for plan administrators.
401k plan fiduciaries date back over 45 years, after Congress passed the Employee Retirement Income Security Act of 1974 and after federal legislators green-lit the Review Act of 1978. Both plans included language that required 401k plan managers to act as fiduciaries – i.e., administrative stewards that would protect investors’ interests and to adhere to rigid conduct standards when managing company retirement plans.
Both the U.S. Internal Revenue Service and the Department of Labor oversee 401k plan fiduciary requirements, which largely establish a twin set of responsibilities for plan administrators:
Named fiduciaries. These fiduciaries are tasked with overall supervision of a company’s 401k plan.
Plan administrators. 401k plan administrators handle plan operations, under the guidelines laid out by the federal government via ERISA. Often, employers will turn to third party plan administrators to act as plan fiduciaries in key areas like investment advisors and plan administration.
The difference in the two roles are standardize by business decisions and fiduciary decisions.
When, for example, companies make a decision to create or terminate a 401k plan, that’s a business decision. When a company takes active steps to operate a 401k plan, like choose investment advisors and hire a third-party administrator, it’s acting as a plan fiduciary.
The Five Primary Duties of a 401k Plan Administrator
Plan fiduciaries wear several hats in handling a company’s 401k plan administration duties. Some responsibilities take priority over others – and these management tasks are at the top of that list.
Master the rules of the plan fiduciary job. From a broad-brush point of view, 401k plan administrators must follow several mandatory rules as established by ERISA. They must . . .
— Make 401k plan decisions that are in the best interest of plan participants.
— Act with prudence, especially in critical areas like plan investments and administration.
— Protect plan participants by broadly diversifying plan investments, to curb downside risk among 401k plan assets.
— Follow the guidelines laid out in the 401k plan operations document to the letter.
— Ensure that 401k plan fees are both needed and reasonable, with appropriate benchmarking against fees from comparable 401k plans.
Other Key Plan Responsibilities
Beyond the five obligations listed above, 401k plan fiduciaries also handle the following plan management tasks.
Hiring a third-party fiduciary. The actual act of bringing aboard a third-party 401k plan administrator to act as fiduciary, is by itself, a plan fiduciary responsibility. 401k plan service providers must be thoroughly vetted and, once hired, the provider’s performance must be reviewed regularly. Additionally, fees charged by those providers for their professional services must be thoroughly reviewed on a regular basis.
Acting as prudent administrators. The laundry list associated with 401k plan administration is a long one. Chief among those responsibilities are keeping the 401k plan compliant with regulatory requirements (including all federal government reporting requirements), ensuring the plan is operating under the guidelines laid out via ERISA and by the 401k plan’s operating document, handling any 401k plan testing, and conducting thorough 401k plan recordkeeping per ERISA regulations.
Often, the responsibilities of overseeing numerous 401k plan administration responsibilities is so onerous, companies wind up hiring a professional and experienced 401k plan provider.
Ensuring that plan contributions are distributed in a timely fashion. 401k plan fiduciaries are also charged with depositing employee plan contributions into the 401k plan in short order. Federal law does allow some timeline leniency for plan contribution distributions, but plan fiduciaries must make those distributions no later than on the 15th day of the month following the month plan participants’ funds were withheld from payroll wages.
Smaller companies, with up to 100 employees, can meet distribution regulatory mandates by depositing plan participant contributions by the 7th business day after payroll withholding.
Following ERISA bond coverage guidelines. In their role as plan administrators, fiduciaries must ensure that fidelity bond coverage is purchased from a qualified surety or reinsurer that equals the lesser of either 10 percent of 401k plan assets or $500,000.
Meeting regulatory disclosure mandates. As company 401k plans operate under the jurisdiction of the federal government (as laid out in ERISA), there are myriad compliance rules and mandates that must be met – and that obligation falls under the responsibility of the plan fiduciary.
Plan fiduciaries that do not file government reports accurately or file those reports late may see their companies hit with substantial financial penalties, civil lawsuits, and even plan disqualification by the federal government
The Takeaway on 401k Plan Fiduciary Responsibilities
401k plan fiduciaries have their hands full in accommodating the regulations and rules laid out for proper plan operation.
While those responsibilities are abundant, the tasks listed above need to be prioritized by plan fiduciaries, whether that means company administrators or third-party plan services providers.
In that regard, meeting fiduciary requirements is hardly a luxury – it’s a necessity.