By: Michael Rom - Managing Director, Pensionmark

Here are 5 practical reasons why employers should prioritize a top to bottom review of their 401(k) plan in 2021 – not only to avoid costly issues and liability exposure, but also to leverage strategies to better serve employees.

1. Avoid costly compliance missteps

Employers should review their 401(k) plan ASAP to identify any areas of administrative exposures brought on from new legislative requirements or caused by internal distractions and challenges. This past year:

• 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
• IRS penalties jumped 10X; the repercussions resulting from noncompliance have never been higher¹

2. Provide more support for financially stressed employees

Companies are seeking ways to alleviate employee financial stress and burdens exacerbated by the pandemic² – the 401(k) can provide more than long-term retirement security, including benefits that can bolster employee emergency savings such as:

• Financial wellness counseling
• After-tax savings strategies
• Student-loan repayment dollar matching opportunities, and more

3. Minimize fiduciary and administrative liability

Plan reviews are integral to helping employers identify potential risk exposure related to retirement plan sponsorship*; 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 many fail to complete while balancing other priorities. This can easily be addressed via a plan review which considers the compensation of the recordkeeper, underlying investments, third party administrators, and the financial advisor.

5. Assess your overall plan health

A common misconception of 401k is that once a plan is in place, no further involvement is required. That couldn’t be further from the truth – 401(k) plans are dynamic, requiring ongoing updates to reflect legislative and regulatory rule changes, along with adopting new features that will better serve your employee demographic (improve participation, savings levels, and investment strategies).

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.

*The pace of participant ERISA lawsuits continues to increase with over 200 filed in 2020, an 80% increase over the prior year.  In addition, the DOL conducted 1,122 civil investigations during the year, with 67% resulting in the most ever monetary damages or corrective changes.³

¹Secure Act Increases Late Filing Penalties, Retirement Learning Center, Jan. 24, 2020.

² 2020 Prudential Retirement Plan Sponsor Survey, 2020.

³ Fact Sheet EBSA Restores Over $3.1 Billion to Employee Benefit Plans, Participants and Beneficiaries, U.S. DOL, EBSA.  October 29, 2020.