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The Biggest Mistakes Plan Sponsors Make


If you are a plan sponsor, you are probably aware that there are more liabilities and regulations to worry about than ever before. There are concerns about IRS rules, fiduciary responsibilities, and tax law changes. Failure to comply with regulations can be an expensive disaster, with the ever-looming threat of losing your plan’s qualified status.

In my work with hundreds of retirement plans, I’ve come across a variety of errors and mistakes. Most of the time, we can identify and correct plan errors before they cause major issues. But once in awhile, there are complex problems that we can’t solve. Here are the top five mistakes I’ve seen plan sponsors make:

1. Not Understanding Their Role as Fiduciary

Even if they aren’t aware of it, many of the actions involved in operating a plan give the person performing them the role of a fiduciary. This means that they are required to adhere to ERISA rules for a fiduciary including:

  • Acting solely in the interest of plan participants
  • Carrying out their duties prudently
  • Following the plan documents
  • Diversifying plan investments
  • Paying only reasonable plan expenses

ERISA requires expertise in a variety of areas, such as plan administration and investments. If they lack that expertise, a fiduciary is obligated to hire someone with appropriate professional knowledge to oversee those functions.

2. Lack of Awareness of Investment Fees

Many companies use their 401(k) provider to provide investments for their plan. However, they may be unaware of the associated investment fees for their plan. It’s the plan sponsor’s responsibility to minimize fees and consider how taxes will affect the success of plan’s participants. Plan sponsors need to thoroughly understand all investment fees associated with the plan.

3. Not Reviewing Service Providers

As part of a plan sponsor’s obligation to have only reasonable plan expenses, they are required to evaluate the performance and fees of their service providers. For the arrangement to be deemed reasonable, service providers must provide updates and reports regarding their fees and performance. Make it a habit to review annual updates from your service providers to ensure their performance and fees are in the best interest of your participants.

4. Not Staying On Top of New Laws

April 30, 2016 marked the IRS deadline for employers restate their 401(k), profit-sharing, or other defined contribution retirement plans. Plans that did not comply with the restatement deadline could lose their qualified status or face fines of up to $15,000. It’s the plan sponsor’s responsibility to stay up-to-date on new requirements and comply promptly.

The retirement plan landscape is as complex and challenging as ever. On top of their other responsibilities, plan sponsors have the difficult job of acting as their plan’s fiduciary. Partnering with an experienced and qualified retirement plan professional make help reduce fiduciary liability and avoid costly mistakes. To learn more about how we help plan sponsors, call our office at (717) 283-4186 or email me at dniggel@keywealthpartners.com to schedule a “Get Acquainted” meeting.

About David

David Niggel, CFP®, ChFC®, AIF® is the founder and president of Key Wealth Partners, LLC, an independent wealth management firm serving individuals, families, and business owners. Along with over a decade of financial services experience, he has advanced knowledge and training in providing holistic financial planning with fiduciary and ethical care, holding the CERTIFIED FINANCIAL PLANNER™, Chartered Financial Consultant®, and Accredited Investment Fiduciary® certifications. With hands-on entrepreneurial experience, he has the unique ability to help clients meet both their individual and business goals. Based in Lancaster, he serves clients through the York, Harrisburg, Hershey, and Central, Pennsylvania areas. Learn more by visiting www.keywealthpartners.com or connecting with David on LinkedIn.