Best Practices for 401(k) Plan Sponsors: Fiduciary Responsibilities

Plan Sponsors, including those of 401(k) retirement plans, have a wide range of fiduciary responsibilities; first and foremost is that they must act in the best interests of their retirement plan participants. This responsibility includes ensuring that the plan is being managed prudently and efficiently, and that participant assets are being safeguarded. Let's explore some of the top best practices we've seen for plan sponsors seeking help on fulfilling their fiduciary responsibilities.

Best Practices for 401(k) Plan Sponsors

Understand You Plan Structure

Successful management of a 401(k) plan begins with operational compliance. A term we like to use that implies you are acting in accordance with the plan documents - what is done in practice is reflected in the governing documents. The written plan documents we provide outline the plan's operation, policies, and procedures. As a third-party administrator (TPA) we can assist you with managing the plan's day-to-day operations. 

Review and Monitor Plan Fees

As a plan sponsor, you have a responsibility to ensure that plan fees are reasonable and necessary. Reviewing and monitoring plan fees can help you fulfill this responsibility and ensure that participant assets are being used appropriately. Most retirement plan sponsors work with investment professionals to assist in the review and monitoring of fees and other aspects of the plan. A fee benchmarking analysis is often used to compare your plan's fees to industry standards. You should also review your plan's fees regularly and negotiate with service providers to reduce costs when appropriate. The DOL 401(k) Plan Fee Guide for plan sponsors to help them ensure they are paying a reasonable amount for the services received. Additionally, the IRS Fee page is also a resource for plan sponsors on fees.  

Provide Effective Communication and Education

To ensure the success of your 401(k) plan, most plan sponsors work with financial advisors who prioritize effective communication and education. Keeping participants informed about their investment options, fees, and other vital plan information is an essential best practice. Providing education and guidance on investment strategies, retirement planning, and other topics to help them make informed decisions is one responsibility you can share with a knowledgeable advisor. Additionally, offering financial wellness programs can enhance participants' financial literacy and help them achieve their retirement goals.

Offer a Diversified Lineup of Investment Options

As a plan sponsor, you have a responsibility to offer a diversified lineup of investment options that are appropriate for your plan's participants. This includes a range of asset classes, such as stocks, bonds, and mutual funds, as well as investment options with varying levels of risk. Regularly review and monitor your plan's investment options to ensure that they continue to meet the needs of your participants and are performing well. Again, here is where we see most plan sponsors working with investment professionals to help them meet their responsibilities. 

Monitor Plan Performance

Monitoring plan performance is crucial for ensuring the long-term success of a 401(k) plan. This includes regularly reviewing the plan's investment performance, participant contribution rates, and other key metrics. Using this information you and your financial advisors can make informed decisions about the plan's operation and to identify areas for improvement.

Evaluate Plan Design

One of our passions here at Uniglobal is plan design. Plan design is an important part of ensuring that your 401(k) plan is meeting the needs of your participants. Our consultants work with plan sponsors every day on a number of factors that impact their plan's operation, such as eligibility requirements, vesting schedules, and contribution matching formulas. Regularly reviewing and updating your plan design with us will help you to ensure that it remains competitive and attractive to potential participants.

In conclusion, plan sponsors have a fiduciary responsibility to act in the best interests of their 401(k) plan participants. By understanding you plan structure, reviewing and monitoring plan fees, providing effective communication and education, offering a diversified lineup of investment options, monitoring plan performance, and evaluating plan design, you can fulfill your fiduciary responsibilities and ensure the long-term success of the plan. As always, it's important to consult with legal or financial professionals to ensure that you're complying with applicable laws and regulations. There are a number of responsibilities fiduciaries have and not all are mentioned here. If you have questions, please contact us