10 Things I Know About...Small Business 401(k) Plans
10. EDUCATE
Employee education is the key to a successful retirement plan, and it is also required to satisfy Department of Labor (DOL) guidelines.
9. ACTIVE MONITORING
The DOL requires plan sponsors to regularly monitor investment options to satisfy their fiduciary responsibilities. Most sponsors, if asked, would have a hard time proving that they have done so.
8. HIDDEN FEES
The vast majority of plans pay too much in fees. Most businesses do not know what hidden fees they are paying, but they may be able to lower their administrative costs.
7. WHAT AUDITORS LOOK FOR
A written investment policy statement is typically the first thing a DOL auditor wants to see. If your plan doesn’t have one, draft one that is written properly and does not back you into a corner. Violating an IPS may be worse than not having one!
6. PROVIDE RESOURCES
Employees really appreciate having access to a financial advisor who will help them understand the plan’s benefits and their financial goals.
5. MINIMIZING COSTS
I believe that two-thirds of the time a plan’s investment costs can be lowered. Obviously, this contributes to performance.
4. DESIGN FLAWS
Many 401(k) plans are improperly designed and do not allow the owners of the company to maximize their contributions.
3. KNOW THE RULES
Most companies believe the DOL requires them to deposit salary deferrals within 15 days. This may not apply to your business, and it leads to one of the most common violations found in IRS and DOL audits.
2. CUSTOMIZE
One of the most common questions about 401(k) plans involves whether or not to include a Roth provision. It usually only makes sense if you have a highly compensated workforce.
1. HELP IS COMING
There are big changes coming to IRS 5500 filings this year that should lead to more transparency for owners and employees alike.
John Wilcox is a partner at Mayflower Advisors in Westborough. He can be reached at john.wilcox@mayfloweradvisors.com.
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