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Is It Time for a 401(k) Plan Check-Up?

by The Human Equation, Inc. on 5/10/2010
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Although employees are always looking for great returns in their 401(k) plans, most of them understand that “slow and steady” wins the race in this regard. Accordingly, employees do not generally overreact to the inevitable market swings that may negatively affect their accounts. However, in today’s economic climate, employees are more concerned, and thus more cautious, than perhaps ever before.

While employers want their plans to run efficiently, federal agencies charged with the task of monitoring compliance with all applicable laws and regulations are always on the lookout for violations. Thus, administrators need to be aware of their fiduciary obligations as decision-makers and must make every effort to ensure that employees are getting the most appropriate investment choices and not paying unreasonable fees.

So, how can the person charged with oversight of the company’s 401(k) make sure the plan stays on track? From a liability standpoint, administrators are required to meet certain legal guidelines with regard to their company’s retirement plan. From an ERISA standpoint, regulators require employers to benchmark their plan’s expenses, investments and procedures on a regular basis.

The best way to ensure that all required steps are taken is to perform routine check-ups on your 401(k) plan. Below is a list of questions that should be asked of your plan:

Does your plan…
Maintain a formal participant education program?
Conduct and document annual reviews of the education program?
Have regularly scheduled participant enrollment and education meetings?

When it comes to fees…
Do you know how much you’re paying in administrative fees?
Are you confident of what investment-based expenses you’re paying?
Do you conduct and document a periodic review of all fees?

In terms of plan design and administration…
Are you being made aware of new plan design options on a timely basis? (Safe-harbor, cross testing, catch-up, etc.)
Are HCEs aware of and satisfied with the amount they can contribute?
Are plan-related testing and reporting being done on a timely basis?

When considering the investment portfolio…
Do you conduct and document an annual investment portfolio review?
Are you receiving a third-party analysis of investment management?
Do you have, maintain and follow an Investment Policy Statement (IPS)?
Do you offer strategic or lifestyle portfolios (managed accounts)?

To ensure compliance with fiduciary responsibilities…
Do you maintain a fiduciary file with documentation of all reviews?
Do you know who your plan fiduciaries are?
Do the fiduciaries know their responsibilities?
Do you have independent oversight for key plan areas?

Having difficulty answering yes to any of these questions? If so, your 401(k) plan may be in need of some attention. In addition to giving your 401(k) plan the attention is needs, you may also want to consider purchasing a fiduciary liability insurance policy to cover any oversights or pitfalls that may create liability.

If you would like more information about undertaking your own 401(k) check-up, or obtaining a fiduciary liability insurance policy, please contact us.

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Categories: 2010

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