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A Comprehensive Guide to Conducting a Compliance Review for Your 401(k) Plan

April 29, 2024

As a plan sponsor or administrator, ensuring the compliance of your 401(k) plan is paramount.

Compliance reviews play a crucial role in identifying any discrepancies or potential issues within the plan, ultimately safeguarding the interests of both employers and employees.

In this comprehensive guide, we'll delve into the essential steps and considerations for conducting a thorough compliance review for your 401(k) plan.

  1. Understand Regulatory Requirements:

    • Familiarize yourself with the regulatory framework governing 401(k) plans, including the Employee Retirement Income Security Act (ERISA), Internal Revenue Code (IRC), and Department of Labor (DOL) regulations.

    • Stay updated on any changes or updates to the regulatory landscape to ensure ongoing compliance.
  2. Review Plan Documents:

    • Start by thoroughly reviewing the plan documents, including the plan's summary plan description (SPD), adoption agreement, and any amendments.

    • Ensure that the plan documents accurately reflect the plan's operations and comply with legal requirements.
  3. Evaluate Plan Operations:

    • Assess the day-to-day operations of the plan, including contribution procedures, investment options, loan provisions, and distribution processes.

    • Verify that contributions are being made in a timely manner and in accordance with plan terms and legal requirements.
  4. Conduct Discrimination Testing:

    • Your Third-Party Administrator will perform annual discrimination testing, such as the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests, to ensure that the plan does not favor highly compensated employees.

    • Address any failures promptly and take corrective action as needed.
  5. Review Fiduciary Responsibilities:

    • Evaluate fiduciary responsibilities, including investment selection and monitoring, fee disclosures, and participant communications.

    • Document fiduciary decisions and ensure they are made in the best interest of plan participants.
  6. Assess Service Provider Arrangements:

    • Review agreements with plan service providers, such as recordkeepers, trustees, and investment managers, to ensure compliance with fiduciary standards and fee reasonableness.

    • Consider conducting periodic benchmarking to assess the competitiveness of fees and services.
  7. Document Findings and Remediate Issues:

    • Document the findings of the compliance review, including any identified deficiencies or areas for improvement.

    • Develop and implement a remediation plan to address any compliance issues, involving necessary stakeholders and allocating resources as needed.
  8. Monitor Ongoing Compliance:

    • Establish processes for ongoing monitoring and oversight of the plan's compliance status. 

    • Conduct regular reviews and assessments to ensure continued adherence to regulatory requirements and best practices.

Conclusion: Conducting a compliance review for a 401(k) plan is a critical responsibility for plan sponsors and administrators.

By following the steps outlined in this guide and staying vigilant about regulatory changes, you can effectively safeguard the integrity of your plan and fulfill your fiduciary obligations.

Remember, proactive compliance efforts not only mitigate risks but also contribute to the long-term success and security of the plan and its participants.