401(k) Compliance Concerns
Employee lawsuits have risen 400% over the past 20 years to the current level of 6.5 claims per 1,000 employees annually. While not all of these suits involve company-sponsored retirement plans, recently, many class action lawsuits have been filed against 401(k) fiduciaries. These suits allege numerous breaches of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). There are a variety of alleged breaches but the common theme is that the plan’s fiduciaries allowed the plans to pay too much for the services of third-party providers. The excessive fees reduced the net performance of the investments thus causing loss to participants and beneficiaries. The financial exposure for class-action cases brought on behalf of plan participants can be significant.
Investment Policy (IP) Statement Missing
Can plan sponsors meet their ERISA fiduciary obligations without having an IP statement in place?  Yes...but a well-written investment policy statement can provide policy direction and procedural guidelines that comply with the fiduciary standards imposed by ERISA.  In a recent compliance review of a 401(k) plan for a mid-sized restaurant with 28 employees, we found that the plan did not have an Investment Policy Statement.  A cause for concern?  Not usually but unfortunately the plan was deficient in several other areas.  Our compliance review revealed that the plan's investments and fees had not been reviewed for several years.  In addition, the plan provider did not disclose all the fund fees and the plan had not been amended to include a diversified Qualified Default Investment Alternative as defined in ERISA section 404(c).  These issues left the company open to potential employee lawsuits.  Our 401(k) Compliance Solution recommendations included writing an Investment Policy Statement, providing educational seminars for employees, a complete analysis and review of all investments and fees along with an amendment to the plan to include a diversified QDIA. Thanks to our recommendations, the changes were implemented and now the plan is in full compliance.

How Important is a 401(k) Plan?
Can a firm with 80 employees retain quality employees without a 401(k) plan?  No, as one of our business clients came to find out.  Other firms were wooing their key employees away with great 401(k) plans and employer-matching programs.  Once the client realized they would be able to attract new employees and retain them with a 401(k) plan of their own, they asked for our assistance in putting the plan in place.  The owners were quite surprised to see how many employees signed up for the plan.  After two years, they added the employer matching benefit and have seen their employee retention rate soar.  It was a win-win situation - for both the employers and the employees!