Top 5 Critical Tasks for 401(k) Plan Sponsors to
Tackle at the Beginning of the Year
As a plan sponsor, starting the year off strong is crucial to ensuring your 401(k) plan runs smoothly, stays compliant, and delivers value to your employees.
The beginning of the year is an ideal time to assess key areas of your plan’s management and make strategic decisions that set the tone for success.
Here are the top 5 critical tasks you should prioritize:
1. Review and Benchmark Fees
Ensuring your plan’s fees are reasonable and competitive isn’t just a best practice—it’s a fiduciary obligation. Excessive fees can harm participants’ retirement outcomes and expose you to compliance risks. By benchmarking fees annually, you can identify opportunities to reduce costs while maintaining high-quality service.
Action Steps:
Conduct a detailed review of all plan fees, including recordkeeping, administration, and investment management costs.
Benchmark your fees against similar plans to ensure they’re reasonable.
Document your benchmarking process to demonstrate compliance with fiduciary duties.
2. Evaluate Investment Options
Regularly reviewing your plan’s investment lineup ensures you’re offering high-performing and cost-efficient funds that align with your Investment Policy Statement (IPS). Neglecting this step can lead to underperforming investments, which may expose you to fiduciary risk and dissatisfaction among participants.
Action Steps:
Analyze the performance of each fund against benchmarks and peers.
Replace underperforming funds or those with high fees that no longer meet the plan’s goals.
Document the review process and decisions for your fiduciary file.
3. Conduct a Compliance Review
Adhering to regulatory requirements under ERISA, the Department of Labor, and the IRS is essential to avoid penalties and audits. A compliance review ensures your plan is operating correctly and incorporates any regulatory changes from the previous year.
Action Steps:
Confirm that the plan operates according to its terms and current regulations.
Implement any necessary updates related to new laws (e.g., SECURE 2.0 provisions).
Review results from the prior year’s compliance testing to address potential issues proactively.
4. Plan Participant Education
Educating participants about their retirement plan is one of the most impactful steps you can take to increase engagement and improve retirement readiness. Employees who understand the benefits of your plan are more likely to participate and make informed savings decisions.
Action Steps:
Develop a participant education strategy for the year.
Schedule sessions to cover key topics such as retirement readiness, savings strategies, and investment basics.
Offer tailored resources for participants who need additional guidance or support.
5. Set a Calendar of Events
A well-organized calendar keeps you on track for important deadlines and ensures nothing falls through the cracks. By mapping out the year’s activities in advance, you can stay proactive and avoid the stress of last-minute tasks.
Action Steps:
Create a calendar that includes key dates for compliance testing, fiduciary reviews, and participant notices.
Coordinate with your service providers to align deadlines and responsibilities.
Schedule regular meetings to review plan performance and address emerging issues.
Final Thoughts
By focusing on these five critical tasks at the start of the year, you’ll set a strong foundation for your 401(k) plan.
Regularly reviewing fees and investments, staying compliant, engaging participants, and planning ahead will not only simplify plan management but also enhance the value your plan delivers to employees.
As a fiduciary, taking these steps demonstrates your commitment to managing the plan responsibly and effectively.
If you need help tackling these tasks or ensuring your plan is optimized, our team at Equity 401k Consultants is here to support you every step of the way.