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3 Things to Know About Self-Managing a 401(k) Plan Before It’s Too Late

3 Things to Know About Self-Managing a 401(k) Plan Before It’s Too Late

A 401(k) plan is one of the greatest benefits a small business can offer its employees. However, many employers believe adopting a 401(k) is manageable and aren’t aware of all of the responsibilities involved until it’s too late. No matter if an employer has 10 or 50 employees, the process of administering and maintaining a plan is still the same. This blog will highlight the three things to know about operating a small business 401(k) plan, and what the employer can do to alleviate some of the responsibilities to refocus on their business.

Administrative Work

Managing a 401(k) plan requires an abundance of administrative work, work that often takes away from productivity. Administrative activities can be broken up into three buckets: enrollment, payroll, and distribution. The following table illustrates the tasks involved within each activity.

Enrollment Payroll Distribution
  • Track and manage eligibility
  • Process automatic enrollments
  • Hold education meetings
  • Check contributions limits
  • Review and approve rollover contributions
  • Maintain updated beneficiary information
  • Receive and upload payroll data
  • Verify calculation of deferral to compensation
  • Verify deferral to eligibility status
  • Check match to formula
  • Verify loan payment matches expected payment
  • Approve and process new loans
  • Approve and process termination distribution requests
  • Process “force out” distributions
  • Approve 59 ½ distributions
  • Approve hardship requests
  • Rest deferral rate to zero after hardship

 

Fiduciary Responsibilities

Many of the actions needed to operate a 401(k) plan involve fiduciary decisions. Fiduciary responsibility can be thought of as a relationship imposed by law where someone has voluntary agreed to act in the capacity of a “caretaker” of another’s rights, benefits, and retirement plan assets.

According to the IRS, the fiduciary has a legal obligation to carry out its plan responsibilities with the highest degree of prudence, good faith, honesty, and integrity, service and undivided loyalty to the beneficiaries’ interests—in this case, retirement plan participants.

The fiduciary responsibilities also include:

  • Proprietary due diligence for funds selection and management
  • Distribution of required participant notices, including a summary plan description (SPD), a summary of material modification (SMM), an individual benefit statement (IBS), and a summary annual report (SAR)
  • Timely submission of employee and employer contributions


Whether the employer hires someone to manage the plan, the employer/plan administrator still has some fiduciary responsibility.

Compliance Reporting

As part of the fiduciary role and to maintain compliance with the IRS, plan administrators are responsible for:

  • Form 5500 filing of annual return/report of employee benefit plans
  • Form 1099-R, used to report distributions (including rollovers) from a retirement plan
  • Form 8955-SSA, used to report separated participants with deferred vested benefits
  • Compliance testing
  • An annual plan audit of the plan’s financial statement

 

What Employers Can Do to Alleviate Plan Administration

Small business employers should consider partnering with a Professional Employment Organization (PEO) to alleviate both the cost of and time to operate a 401(k) plan. Outsourcing plan administration to a PEO reduces out of pocket expenses, administrative duties, and fiduciary liability. Furthermore, PEOs offer 401(k) plan options that are flexible to meet the needs of small businesses, while at the same time enabling employers to provide a convenient retirement solution to their employees.

Offload Administration to a PEO

There is more to know about setting up and managing a 401(k) plan than one would expect. For employers who do not have the resources in HR or the time to focus on self-adopting, a PEO can help tremendously offload plan administration so an employer can refocus on operating the business.

A premier human resources provider in North America, DHR provides a cost-effective 401(k) Retirement Plan through Transamerica Retirement Solutions. Contact us today and learn how easy it is to set up a retirement plan for your small business.



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