August 30

9 ways a 401(k) Advisor can help you save on time, money, and costly penalties

The Employee Retirement Income Security Act (ERISA), established in 1974, is a federal law that has established guidelines that Plan Managers must follow in order to protect plan participants. ERISA covers both Defined Benefit and Defined Contribution plans offered by employers.

As a Plan Sponsor, you can hire a Financial Advisor or Financial Planner to assume the 3(21) or 3(28) Fiduciary roles. The “3” in 3(21), and 3(38) comes from Section 3 of ERISA, which defines each of these Fiduciary roles.


If you’re a CFO, you’re already occupied in optimizing cash flow and improving the company’s financial condition. But in addition to owning complex financial models, you also own Fiduciary liability for your company’s 401(k) plan. It’s important to understand whether your 401(k) plan is run in a cost-efficient manner. With an improved plan design and investment menu, a 401(k) Advisor helps you become more competitive to prospective employees and reduce employee turnover — and improve your bottom line as a result.

A 401(k) Advisor offers improvements for your bottom line by improving your 401(k) plan design, and boosting talent acquisition and employee retention.

Here are 9 of the biggest benefits of working with a 401(k) Advisor on your company's retirement plan.



1. Stay compliant.

All sponsors take on specific responsibilities in running a 401(k) plan. 

One major responsibility is keeping out of the crosshairs of the Department of Labor (DOL) and Internal Revenue Service (IRS) by keeping your plan compliant within their pre-set guidelines.

This includes:

  • Plan contribution and compensation limits — the IRS sets these limits annually.
  • Required Minimum Distributions (RMDs) — participants over the age of 70.5 and who are not working for the company must start receiving an annual benefit distribution from the plan
  • Other distribution rules — for traditional 401(k) plans, money is deposited pre-tax, accumulates tax free, and gets taxed when withdrawn; there may be other tax implications for early withdrawals before age 59.5. Contributions to Roth 401(k) plans are made using after-tax income, and distributions, including growth, are tax-free.
  • Form 5500 — to provide information about the plan and how it operates
  • Non-discrimination testing — to make sure they benefit all employees equally, and not a specific group
  • Deadlines — to deliver plan information to various federal agencies, to complete employer contributions by a certain date to be considered tax-deductible, and so on

While failure is something that most people avoid at all costs, it’s actually very common among 401(k) plans. Judy Diamond Associates, an employee benefits research firm, reported that almost 60,000 plans across the country failed their most recent nondiscrimination tests — resulting in $794 million in corrective refunds to employees! Your 401(k) Advisor can guide you through the process and help you maintain compliance, no matter what changes you need to make to your plan. 


2. Stay on track and accomplish your goals.

Your 401(k) plan can help you accomplish two main goals: your business goals and your employee’s retirement goals. 

At times, it can be difficult to reconcile these sometimes-competing goals. A 401(k) Advisor helps you balance the interests of your business and your participants’ retirement readiness.


Feel confident in your financial future

At Prosperity, we help Business Owners, Trustees, and Administrators stay financially on-track with a Complimentary Financial Plan.


Book your free consultation with a Prosperity Advisor today!


3. Save precious time.

Running a great 401(k) plan takes time. 

You need to ensure your company’s retirement plan complies with all legal requirements. This includes amending the Plan Document, preparing statements for employers and employees, assisting with all plan distributions, and making sure the plan complies with contribution limits. There are piles of paperwork to be completed, choices to be made, and employee investment questions to answer.

A 401(k) Advisor relieves you of your Fiduciary duty and precious time that is better invested in the business. That way, your paperwork is complete on time, decisions are made with the most up-to-date and relevant information, and employees are educated on the right investments for their portfolio. 


4. Delegate to your 401(k) quarterback.

A quarterback is the leader of the offense on a football team, in both a literal and symbolic sense. Your 401(k) Advisor is the quarterback of your 401(k) service team.

Your 401(k) plan requires ongoing attention; service providers from a variety of fields (Administration, Recordkeeping, Payroll, Financial and Investment Advice) need to be in constant communication to keep the plan in good shape. Even the IRS and DOL may be involved. Your 401(k) Advisor quarterbacks all your 401(k) service providers and helps you stay in compliance.


5. Less administrative hassle. 

Between dealing with the IRS and DOL, completing mountains of paperwork, fielding endless questions from your participants, and putting out fires in your day-to-day business operations — running your 401(k) can quickly become taxing. 

It’s easy to see why many Business Owners relegate 401(k) plan management to the back burner. But a poorly-run 401(k) plan can put you at risk of compliance issues with heavy costs in time, stress, and money!

Delegate these responsibilities to your 401(k) Advisor who relieves you of these duties by providing reliable and accurate plan management. 


6. Offload complicated responsibilities.

ERISA states that a person is a 401(k) Fiduciary "to the extent that he exercises discretionary control or authority over plan management or authority or control over management or disposition of plan assets, renders investment advice regarding plan assets for a fee, or has discretionary authority or responsibility in plan administration."

That means you are responsible for:

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Carrying out duties prudently;
  • Following the Plan Document (unless inconsistent with ERISA);
  • Diversifying plan investments; and
  • Paying reasonable plan expenses.

And though you are likely an expert in your field of work, as a 401(k) Fiduciary, the DOL also requires you to be an expert in the ever-changing world of investments. Chances are, you don’t have adequate training and exposure to the ever-changing world of investments.That makes you and the company liable for choosing low-performing investments and poorly diversified investment menus, and for providing financial misinformation to participants.


7. Receive guidance for big, high-stakes decisions.

Most Business Owners, Trustees, and Administrators are not experts in retirement plan design. 

A 401(k) Advisor can help you choose and design the right 401(k) plan and features for your needs and goals. We’ll help you understand how much you and your employees can contribute (and how you can contribute far above and beyond the general limit).


8. Deep, reliable, and accurate expertise.

There is a wide variety of plans out there all from different providers. 

Which provider is the best? Which plan is right for your needs and goals, and those of your participants?

If you want to get your 401(k) house in order, choose a partner with decades of experience and a successful track record. A 401(k) Advisor will understand the provider landscape and help steer you towards the one that’s right for you.

You also do not want to run into legal and compliance issues with the IRS and DOL. Your 401(k) Advisor gives you access to the expertise you need, right when you need it most.


9. Employees receive the education they need.

ERISA levies high penalties for Trustees and Administrators who dispense inexpert investment advice. 

Unfortunately, it can be easy to cross the fine line between educating your employees and giving investment and financial advice. If you do cross the line, you’ll run into liability and compliance issues. The best way to avoid these issues is to work with a 401(k) Advisor who is qualified to answer all financial and investment questions.


We Can Help

Running a 401(k) plan is beneficial in many ways, from attracting top candidates to reducing your tax obligations. 

However, it can be difficult to carry out all the Fiduciary and compliance responsibilities that come with sponsoring a 401(k). 

We can help you alleviate much of the stress that comes with providing financial and investment education, staying on top of your paperwork, and managing your Fiduciary liability.

To discover what Prosperity 401(k) Advisors can do for you, call our San Ramon, CA at (925) 314-8500, or fill out the form below and someone will get in touch with you. We look forward to hearing from you.


Tags

3(21) advisor, 3(38) advisor, 401(k), 401k advisor, 401k plan, 401k service provider, erisa, investment menu, investment menu design


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