Do Modern Day 401(k) Plans Require Monitoring?

Increased scrutiny and evolving regulations have reignited the discussion on employee benefit plan fiduciary responsibility. Stemming from breaches in fiduciary responsibility, the Employee Benefits Security Administration (“EBSA”), primarily responsible for enforcing the Employee Retirement Income Security Act (“ERISA”), restored over $1.1 billion to employee benefit plans during 2017. ERISA, as amended, sets the standards that govern the administration of retirement plans to ensure that Plan Sponsors act as fiduciaries by designing and operating retirement plans for the exclusive benefit of plan participants and their beneficiaries.

Employers have the power to benefit from sponsoring employee benefit plans, such as the ever popular 401(k) retirement Plan, by profiting from tax deductions, attracting and retaining employees, and by saving for their own retirement. Great power, however, comes with great (fiduciary) responsibility.

Fiduciary responsibility can be defined as always acting in the best interests of plan participants. Some examples of the responsibilities include the following:

  • Hiring and monitoring 401(k) service providers – Monitoring is key! You can’t set it and forget it
  • Following the Plan Document – For compliance purposes and to ensure it is updated for any changes to the Plan or law
  • Monitoring investments – Diversifying investment options, assessing performance and replacing an investment that is no longer appropriate for the plan
  • Acting prudently when carrying out their duties – Acting with care, skill and thought for the future
  • Minimizing expenses to only reasonable costs – Must be permitted by the Plan Document and practical
  • Monitoring all employee and employer contributions – the timely remittance of contributions (as soon as reasonably possible)
  • Educating participants – Participants should be notified of investment options and material modifications to the Plan

We live in the information age, where it is natural to assume administrative tasks related to 401(k) plans are automated and require little monitoring. After all, the administration of 401(k) plans is typically outsourced to Third Party Administrators (TPAs), with billion dollar portfolios, thousands of employees, and intuitive online platforms. These TPAs go through rigorous audits from reputable accounting firms to ensure the design and operating effectiveness of controls surrounding the benefit Plans they service are adequate. However, even if the Plan Sponsor hires others to help them manage the Plan, the ultimate fiduciary responsibility remains with the Plan Sponsor.

Breaches of fiduciary responsibility can result in civil and criminal investigations as well as penalties of up to 20% of an amount recovered. A fiduciary may be personallyliable for restoring any losses or profits made through use of plan assets. Fiduciary liability insurance only protects the plan against losses, but will not protect the fiduciary for breach of duty.

Fiduciary responsibility and liability may be an overlooked concern by management of companies but breaches can have profound consequences.For example, in March 2018, a U.S. District Court ordered the Fiduciaries of an employee stock ownership plan to pay $2,225,000 as a result of an EBSA investigation. EBSA, an agency under the Department of Labor, has oversight over 694,000 retirement plans and is committed to pursuing all complaints involving ERISA violations.

For ERISA violations that have already occurred, plan sponsors are encouraged to correct violations through EBSA’s Voluntary Fiduciary Correction Program (VFCP), which provides fiduciaries with significant incentives including relief from enforcement actions.

If as an employer you have not been paying attention to your employee benefit plan, it may be time to rethink whether you’re safe from fiduciary liability.

For more information on meeting your fiduciary responsibilities, the Department of Labor has provided an overview of basic fiduciary responsibilities applicable to retirement plans under the law:


Lisa Pacell
Isdaner & Company, LLC

Frank Cannon
Isdaner & Company, LLC