Bring Your Small Business 401(k) Plan into ERISA Compliance

Author: / 10 Mar 2023 / 401(k) Plan Information

For many small business owners, creating and maintaining a 401(k) plan can seem daunting, which is why we’re here to help. Because when it’s done correctly, a 401(k) plan can be an extremely valuable tool for your small business. However, to maximize the benefits, it’s important that your small business’s plan stays in compliance with ERISA regulations.

Understanding ERISA regulations.

If you’re wondering, “what is ERISA anyway?” you’re not alone.

ERISA, or the Employee Retirement Income Security Act, is a federal law that sets standards for employer-sponsored retirement plans, including 401(k)s.

ERISA regulations are designed to protect the interests of plan participants by establishing fiduciary responsibilities for plan administrators and trustees, ensuring that plans are properly funded, and providing transparency with reporting and disclosures.

For small business owners offering 401(k) plans, ERISA compliance can be challenging, but it’s important to stay on top of these requirements to avoid costly penalties (and even lawsuits).

(For more help with unfamiliar terminology, refer to our handy glossary.)

Why it’s important to comply with ERISA regulations.

Compliance with ERISA regulations is essential for protecting your employees, avoiding penalties, maintaining the plan’s tax-qualified status, and building trust and loyalty at your small business. If you sponsor a 401(k) plan for your small business, it’s worth the time to ensure that your plan complies with ERISA regulations to avoid negative consequences for both yourself and your employees.

Comply with the plan documents.

The first step in ensuring your small business 401(k) plan is in compliance with ERISA regulations is to stay up-to-date with your plan document requirements. Make sure that your plan documents are up to date and compliant with state laws, federal laws, and ERISA regulations.

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Properly designate the responsible party for the plan.

As a small business owner, it’s likely that you’ll be responsible for your company’s 401(k) plan. You can also appoint someone else to act as the plan administrator. The person responsible is in charge of ensuring the plan operates in accordance with ERISA regulations. This means:

  • Maintaining accurate records of contributions made by participants and employers on behalf of participants.
  • Keeping track of all funds contributed by each participant and employer.
  • Ensuring that contributions are properly allocated among accounts.
  • Sending of contributions in a timely manner.

Have a plan sponsor and a trustee in place.

The trustee establishes and maintains your small business’s 401(k) plan. It’s also the individual who manages funding the plan, hires the administrator or plan sponsor, and monitors the plan’s compliance under ERISA laws.

In addition to the owner of the company, the plan sponsor can also be a union, a group of representatives, or a key executive. Often, a plan sponsor is also referred to as a fiduciary. That’s a person who takes legal responsibility for making decisions on behalf of plan participants.

Fiduciaries agree to avoid conflicts of interest and work to keep fees reasonable. The fiduciary can also be held personally liable for plan losses caused by mismanagement.

Protect retirement assets.

It may be in your interest to select a 401(k) plan that offers ERISA fidelity bond coverage for up to $1M in assets. This is a great way to safeguard the plan’s assets from fraud and reduce your liability.


Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

Take the next step – Let me help you.

Contact Jay Jacob, Sr. Retirement Plan Consultant

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San Francisco, CA 94104
Support: 855.401.4357

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© 2023 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357

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