Administering a 401(k) Plan: Who Does What?

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Managing a workplace retirement plan is a team effort. Everyone needs to understand their roles and responsibilities to ensure the retirement goals of all employees.

The key players in administering a 401(k) or similar employer-sponsored plan include:

  • The plan sponsor, who appoints an officer or employee of the company as the named fiduciary (plan administrator).
  • The plan administrator, who may outsource certain tasks to service providers, but still retains ultimate responsibility for any outsourced activities.
  • The plan participants, who play a key role in the administration of the plan.
  • Service providers and regulators, who have specific responsibilities related to the plan.

Read on to learn more about how this team functions and how each member plays an important role in ensuring the success of the 401(k) plan.

The Plan Sponsor (The Employer)

The plan sponsor has a legal obligation to act as a fiduciary. This means they must act in the best interest of the plan’s participants, and make informed decisions. 

One of the key responsibilities of the plan sponsor is to conduct regular audits of the plan. This includes reviewing the plan’s financial statements, ensuring compliance with legal and regulatory requirements, and monitoring the performance of the plan’s service providers.

The plan sponsor should also have a process in place for selecting and monitoring service providers, such as investment advisers or recordkeepers. This includes conducting due diligence, reviewing contracts, and monitoring performance on an ongoing basis.

In addition, the plan sponsor should verify the plan has adequate insurance coverage and that all necessary documents, such as the summary plan description and trust agreement, are up to date and in compliance with applicable laws.

It’s important for the plan sponsor to keep themselves informed about the current laws and regulations and make sure that the plan is in compliance. They should also take steps to educate their employees about the plan and the responsibilities of all parties involved.

Named Fiduciary/Plan Administrator

The Named Fiduciary/Plan Administrator is the person chosen by the employer to manage and run the 401(k) plan. 

As a fiduciary, they have a legal duty to act in the best interest of the plan’s participants and make informed decisions. This includes choosing and monitoring service providers like investment advisers or recordkeepers and making sure the plan is following all laws and regulations.

The Named Fiduciary/Plan Administrator’s duties may also include:

  • Filing annual reports and other paperwork
  • Communicating with plan participants and giving them information about the plan
  • Approving transactions and investments
  • Checking financial statements and other reports
  • Keeping the plan’s records and documents
  • Working with service providers to make sure the plan is being run correctly
  • Communicating With the employer, service providers, and participants to make sure the plan is working in their best interest.

Plan Participants

401(k) plan participants have certain rights and responsibilities related to the plan, including the right to contribute, receive information, and direct the investment of their contributions.

Participants can choose how much to contribute, subject to any limitations established by the plan sponsor. They also have the right to change their contribution amount at any time and to direct the investment of their contributions among the options offered under the plan.

401(k) plan participants also have the right to receive certain information about the plan, including the summary plan description,  financial statements, and information about investment options. They also have the right to file a complaint or appeal if they believe their rights under the plan have been violated.

It’s important for 401(k) plan participants to communicate with the plan sponsor and administrator to stay informed about their rights and responsibilities.

Service Providers and Regulators

Service providers and regulators play an important role in the administration of a 401(k) plan. Service providers are companies or organizations that provide various services to the plan, such as investment management, recordkeeping, and trustee services. Regulators are government agencies that oversee and enforce compliance with laws and regulations governing 401(k) plans.

Service providers may include:

  • Investment managers, who manage the plan’s investment options and provide investment advice to the plan sponsor and plan administrator;
  • Recordkeepers, who maintain records of the plan’s assets, transactions and participant account balances;
  • Trustees, who hold the plan’s assets in trust and are responsible for safekeeping the assets;

Learn More About 401(k)Plans

Employers should create an effective 401k communication plan that helps employees make informative decisions for retirement.

Contact RWM today to review your existing 401k or talk through a plan of action to offer retirement savings to your employees. 

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does the advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.

401k Communication Plan For Employers

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Having a 401k plan for your employees is an important part of overall employee benefits and can be a great way to motivate them. However, employers must ensure that they have effective communication strategies in place to properly educate their workers on the 401k plans offered and the benefits associated with contributing to them. 

In this blog, we’ll discuss some tips employers should consider when communicating their 401k plans to employees.

Steps to Effectively Communicate 401K Plans to Employees 

1. Explain the Benefits: Employers should clearly explain what benefits their 401k plan provides, such as tax advantages and potential savings for retirement. It is important that employers make sure to provide detailed information on the features and benefits of their plan in order to help employees understand why contributing to a 401k is beneficial.

2. Provide Easy-to-Understand Information: Employers should make sure that their 401k plan communications are easy to understand, with clear language and simple explanations. Documents such as brochures, handouts, or slideshows can be helpful in providing comprehensive information about the 401k plan in an understandable way. 

3. Offer Guidance: Employers should also provide employees with guidance on how to manage their 401k contributions and investments, and when appropriate offer advice for things such as selecting funds or planning for retirement.

4. Encourage Participation: In addition to providing helpful information about the 401k plan, employers should also take steps to encourage participation. Employers should highlight incentives such as employer match programs or potential tax advantages, and provide opportunities for employees to ask questions about the plan.

5. Regularly Audit/Review Plan: Finally employers should also review their 401k plans regularly to ensure that they meet the needs of their employees and are up-to-date with the changing regulations. This will help employers ensure that their 401k plans are competitive and attractive to current and future employees.

By considering these tips employers can create effective communication strategies for their 401k plans, helping to educate and motivate their workforce while also ensuring that they have a competitive plan in place. Employers should make sure to provide detailed information about the features and benefits of their 401k plan, offer guidance on how to manage contributions and investments, highlight incentives for participation, and regularly audit/ review their plan. Taking these steps will help employers communicate effectively with their employees about 401k plans while also ensuring that they have a competitive offering in place.

Questions to Ask Employees When Discussing Retirement Savings 

As employers strive to create a workplace that provides the best 401k plans for their employees, effective communication is essential. To help employers start conversations with their employees about retirement savings, here are a few starter questions employers can ask:

  • Do you understand compounding interest? 
  • How much do you think you’ll need for retirement?
  • Are you familiar with different investment options?  
  • Do you know the difference between a 401k and traditional IRA? 
  • Are you aware of your current 401k plan options?
  • How comfortable do you feel about contributing to your 401k?
  • Do you know the amount of money that employers are matching for employee contributions?
  • Are you familiar with how investments work in a 401k plan?
  • What other retirement savings options do you have available to you outside of your 401k plan?

An employer should also consider adopting a plain language approach to communicating their 401k plan. This would involve:

  • Providing employees with clear explanations of key terms, such as matching contributions, vesting schedules, and loan features
  • Making sure employees understand their options for diversifying investments in their 401k plan
  • Establishing a culture of open communication with employers frequently checking in on employee progress towards retirement savings goals

Review Your Current 401k Offerings

Employers should also audit/ revisit their current 401k offerings to ensure they are competitive, accessible and cost-effective for employees. This includes reviewing: 

  • The overall investment choices available
  • Matching contributions employers are offering
  • Any fees associated with their 401k plans

Create a Communications Plan

Creating a 401k communication plan is an important step employers can take to help employees understand their retirement savings options and make the most of their 401k plans. By taking the time to review their current offerings and communicate with employees, employers can create an effective 401k communication plan that employees will benefit from.  Encouraging employers to audit/ revisit their current 401k offerings will also help ensure they are providing their employees with the best retirement savings opportunities.  

By establishing a culture of open communication employers can build trust with their employees and ensure they are on track with their retirement savings goals.  By investing in a 401k communication plan employers can help empower employees to make the most of their 401k plans and ensure they are well prepared for retirement.

In Summary

Employers should strive to create an effective 401k communication plan that helps employers and employees understand their 401k plans and make the best decisions for retirement savings. With proper communication employers can confidently ensure that their employees are well-informed about their 401k options and employers’ 401k offerings, resulting in more beneficial retirement savings for employers and their employees.

Contact us to review your existing 401k or talk through a plan of action to offer retirement savings to your employees today! 

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

How to Attract and Retain Employees with a 401(k) Plan

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With circumstances such as low employment and the labor shortage, business owners are looking for new ways to attract and retain top talent. An emerging solution for these recent hiring issues is implementing a 401(k) plan for employees.

According to a recent survey, four out of five employees indicate they want benefits and perks more than a pay raise, and a 401(k) ranks in the top five requested benefits. 

Additionally, millennials and members of Generation Z find benefits even more appealing than their Gen X and Baby Boomer counterparts. In fact, 90% of employees 18 to 34 years old state they would prefer benefits over pay. 

So what does all this mean for business owners? A 401(k) plan can help business owners to attract and retain top talent as well as provide a host of other financial benefits. Let’s discuss.

How Can a 401(k) Plan Attract Top Employees?

According to Forbes, 62% of candidates seriously consider the availability of a retirement plan when deciding whether to accept or remain in a job. Further, 76% of employees are likely to be attracted to another company that cares more about their financial well-being. 

Millions of workers do not have access to an employer-based retirement plan. Therefore, by implementing such a plan at your business, you are automatically setting your business apart from its competition in the eyes of your candidates.

How Can a 401(k) Plan Help with Employee Retention?

A study done by the Society of Human Resource Management (SHRM) found that it typically costs 50%-75% of an employee’s annual salary to replace them. If your business has higher than average turnover rates, it might be time to look at the benefits of a 401(k) plan.

For instance, consider these factors when deciding whether or not to invest in a 401(k) plan for your employees: 

Appreciation

A 401(k) plan grows in value over time. When employment ends, the retirement account means the employee will leave with something of value. 

Compensation

Employees that feel that they are being compensated fairly for their work are more likely to stay in their current positions instead of searching for a new job. A 401(k) plan, or a lack thereof, is an important part of an employee’s compensation and contributes significantly to their decision to stay or leave their current organization. 

Employee Engagement and Team Morale

Leaders who invest in the well-being of their employees are often rewarded with higher employee engagement, satisfaction, productivity as well as a thriving work environment.

Remote work, in particular, can cause employees to feel disengaged from their team and organization. Employers are utilizing 401(k) plans as a method to combat these challenges. Why? Many remote employees would prefer additional benefits over a pay raise. 

What Are the Benefits of Using a 401(k) to Attract and Retain Employees? 

Tax Credits

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019. This act became law as of January 1st,  2020. 

The SECURE Act proposes raising the current Retirement Plans Startup Costs Tax Credit. The SECURE Act  permits an eligible small business to claim a tax credit for adopting a new 401(k) plan and a new automatic enrollment feature. 

Tax Deductions

All businesses can claim a tax credit deduction for paying 401(k) plan-related expenses. For example, these expenses can include:

  • Employer contributions
  • Administration fees

Employer contributions to employees’ 401(k) accounts may qualify as ordinary business expenses. In this case,  these contributions may be tax deductible up to the annual corporate deduction limit on all employer contributions (25% of covered payroll).

Interested in Setting Up a 401(k) Plan for Your Business?

Setting up a 401k retirement savings plan for your business is a great way to save money on taxes and provide your employees with a valuable benefit. 

Consider contacting our team for assistance. At RWM, we provide a clear path to secure retirement for employers and employees of successful businesses. Learn more about us and why we do what we do, here. 

Then, check out our blog for all the retirement savings jargon you should know, here. 

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.