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Ensuring 401(k) Compliance: Actionable Steps for Plan Sponsors

April 16, 2024

As a plan sponsor, ensuring compliance with regulations governing 401(k) plans is paramount to protect both your organization and your employees.

Navigating the complex landscape of regulatory requirements may seem daunting, but with the right approach and proactive measures, you can mitigate risks and maintain a compliant plan.

Here are some actionable steps plan sponsors can take to ensure their 401(k) plan remains compliant:

  1. Stay Informed: Keep abreast of updates and changes to relevant laws and regulations governing retirement plans, such as the Employee Retirement Income Security Act (ERISA), Internal Revenue Code (IRC), and Department of Labor (DOL) regulations. Subscribe to industry publications, attend seminars or webinars, and consult with legal or financial advisors to stay informed about evolving compliance requirements.

  2. Conduct Regular Plan Reviews: Regularly review your plan documents, administrative procedures, and investment options to ensure they comply with current regulations. This includes reviewing plan documents for accuracy, evaluating administrative processes for efficiency, and assessing investment options for appropriateness and compliance with fiduciary standards.

  3. Perform Internal Audits: Conduct internal audits of your 401(k) plan to identify any potential compliance issues or areas for improvement. This may involve reviewing plan documents, participant communications, employee contributions, investment performance, and administrative practices. Address any deficiencies promptly and implement corrective actions as needed.

  4. Document Everything: Maintain thorough documentation of all plan-related activities, decisions, and communications. Documenting compliance efforts, meetings, and decisions can provide evidence of good faith efforts to comply with regulatory requirements in the event of an audit or investigation.

  5. Provide Employee Education: Educate plan participants about their rights, responsibilities, and investment options under the 401(k) plan. Provide clear and accessible information about plan features, investment performance, fees, and contribution options to help participants make informed decisions about their retirement savings.

  6. Engage Qualified Service Providers: Partner with experienced and reputable service providers, such as third-party administrators (TPAs), investment advisors, and ERISA attorneys, to assist with plan administration, compliance monitoring, and legal compliance. Work with these professionals to ensure that your plan remains compliant and responsive to regulatory changes.

  7. Monitor Plan Investments: Regularly monitor the performance and fees of plan investments to ensure they remain in the best interests of plan participants. Implement an investment policy statement (IPS) to establish guidelines for selecting, monitoring, and replacing plan investments in accordance with fiduciary standards.

By taking proactive steps to ensure compliance with regulatory requirements, plan sponsors can safeguard their 401(k) plans and protect the retirement savings of their employees.

Stay informed, conduct regular reviews and audits, document compliance efforts, educate employees, engage qualified service providers, and monitor plan investments to maintain a compliant and effective retirement plan.

With diligence and attention to detail, plan sponsors can navigate the complexities of 401(k) compliance and promote financial security for their employees.