As a small business owner, you have a lot of responsibilities – and if your business has a 401(k) plan, one of them is managing your employees’ retirement plans. Another responsibility you have? Regularly reviewing and updating your 401(k) plan to ensure it meets your employees’ needs and while remaining compliant with regulations. Here’s why reviewing your 401(k) plan is so important:
Ensuring Plan Compliance
It’s crucial to keep up with changing laws and regulations and ensure that your 401(k) plan is compliant. Employers must:
- Deposit employee contributions on time
- Stay within contribution limits
- Refrain from discrimination in favor of highly compensated employees
- Maintain accurate plan documentation
- Stay abreast of new legislation that affects plan provisions like automatic enrollment and updated contribution limits
If your review surfaces gaps in any of these areas, it may be time to revisit the questions to ask your 401(k) provider and consider whether yours still meets your needs.
Employers who do not deposit employee contributions promptly may be subject to IRS and Department of Labor (DOL) penalties. Employers that file a Form 5500 Annual Return/Report of Employee Benefit Plan, must report whether they made any late deposits during the year.
Meeting the Needs of Your Employees
As your small business’s needs, and those of your employees, evolve, your plan may need to be adjusted to offer more benefits or investment options. The flexible features of a 401(k) can accommodate the needs of a broad range of retirement planning objectives.
Each plan participant can choose how much of their salary will be contributed into their 401(k) account each pay period as well as how that money gets invested.
Staying Competitive
Having a competitive retirement plan can help attract and retain talented employees. Regularly reviewing and updating your 401(k) plan can help ensure that it remains competitive with other companies in your industry and beyond.
Fiduciary Responsibility
Regularly reviewing and updating your 401(k) plan can help fulfill your fiduciary responsibility as the plan sponsor – and protect you from potential lawsuits.
Federal regulations are designed to protect the interests of plan participants. They do this by establishing fiduciary responsibilities for plan administrators and trustees. Regulations also ensure that plans are properly funded. Furthermore, they provide transparency with reporting and disclosures.
How Often Should You Review Your 401(k) Plan?
We suggest reviewing your plan at least once a year. However, if there are significant changes in your business, the economy, or the regulations governing retirement plans, you may need to review your plan more frequently.
What Should You Review in Your 401(k) Plan?
Pay close attention to:
- Plan Documents and Compliance: Ensure your plan documents are up to date and compliant with current laws and regulations.
- Fees and Expenses: Check your plan’s fees and expenses to make sure they’re priced competitively with other plans in your industry.
- Investment Options: Ask yourself if the investment options you are offering your employees performing well and meeting their needs.
- Employee Participation and Contribution Rates: Check to see your employees’ participation and contribution rates. Consider ways to increase participation and contribution rates. (We have some tips for that.)
Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.
