What do you think of our site upgrade?
Hosting an industry conference? Ask us about including it in this ticker?

5 Tasks Every 401k Fiduciary Must Do Right Now

December 02
00:30 2014

As we enter the final month of the year, 401k plan sponsors won’t be satisfying their fiduciary duty should visions of sugarplum fairies be the only thoughts dancing in their heads. Year-end brings with it a laundry list of “must-do” tasks 648519_17710501_time_square_stock_xchng_royalty_free_300every 401k fiduciary needs to accomplish before that brilliant crystal ball completes its decent in Times Square. We surveyed retirement plan specialists from all corners of America. Their answers converged on these five key tasks:

#1 Review and Update the Plan Document
“Update that document…it is time…get it done,” says Joshua Austin Scheinker, Senior Vice President at Scheinker Investment Partners of Janney Montgomery Scott LLC in Baltimore, Maryland.

Truth be told, most plan sponsors could live with the same plan document from year to year. But it’s not safe to assume regulators haven’t changed the rules. Many rule changes either expire at year end or begin immediately after year end. Fred Barotz, CPA and Tax Director at accounting firm Anchin, Block & Anchin in New York City, says, “Certain amendments to plans that are intended to be effective throughout 2014, must be formally adopted by December 31 in order to be valid.”

It’s not just regulators, it’s plan sponsors themselves that may have taken actions earlier in the year that require closure by the end of the year. Alan H. Vorchheimer, principal, retirement, Buck Consultants at Xerox in New York City, suggests 401k plan sponsors need to “assure that any discretionary plan amendments effective in 2014 are adopted by December 31, 2014 or the plan could be judged as not operating in accordance with its written terms and subject to penalty.”

Of course, if companies are going to take the time to insure the plan document remains in compliance, it behooves them to confirm its overall effectiveness. “Every plan sponsor needs to review their plan details and make sure the plan is still working for its participants and sponsor,” says Celia Rafalko, Managing Principal and CEO at Piemont Independent Fiduciaries in Glen Allen, Virginia. “Are there new rules that are attractive and useful, like this year’s change that allows after-tax contributions to be rolled to a Roth IRA? Are the eligibility rules still working well? These are just examples. It doesn’t take too long and it is a great way to be sure your plan is fulfilling its purpose.”

Finally, updating the plan document now helps give the plan sponsor a head start going into the new year. Robert A. Massa, Director, Retirement, Ascende, Inc. in Houston, Texas, says, “If you have a calendar year plan, you should review your plan design and make any changes prior to the new plan year. This will provide time for HR, benefit and payroll to prepare for the upcoming changes and any improvements to the plan can be communicated to employees at annual benefit meetings. Also if your plan is a safe harbor 401k plan, changes to the plan design can only be made annually or you risk losing your safe harbor testing exemption.”

#2 Confirm All Required Plan Disclosures Have Been Made.
The last several years have witnessed several changes in mandatory disclosure reporting, both on the part of the plan sponsor and its service provider. Massa, says, “Year-end is when many of the required disclosures must be delivered to employees, such as the 404(a) fee disclosure notices, safe harbor notices, summary annual reports and qualified default investment notices, just to name a few.”

“The most important task every 401k plan sponsor needs to address before the end of the year is to ensure that all required disclosures have been sent out to participants,” says Todd Kading, Managing Director, LeafHouse Financial Advisors, from Austin, Texas. “Plan sponsors are required by law to make ensure participant awareness of their rights in investing plan assets on a consistent basis, so it is imperative that participants receive a qualified default investment alternatives (QDIA) disclosure and a safe harbor disclosure.”

Kading goes a step further when he suggests “a thorough review of their compliance file is imperative for responsible plan sponsors. All communication with participants, including disclosures distributed by them as well as any fee disclosures distributed by the plan provider, should be reviewed and appropriately documented. This is a preventative measure to ensure that there are no future auditing issues that could arise due to lack of appropriate compliance procedures and execution.”

Compiling such documentation may help protect plan sponsors. Vorchheimer offers specific advice along these lines when he suggests plan sponsors “issue required participant disclosure notices (Auto-Enrollment, Safe Harbor Notice, QDIA, etc.) by Dec 2, 2014 for calendar year plans. Failure to furnish these documents could subject your plan’s fiduciaries to liability and penalties.”

#3 Review (and Remove if Possible) Legacy Participants.
Much has been said about the so-called “advantages” for former employees who keep their retirement assets in their old employers’ retirement plans. Less has been said of the disadvantages, not just for those former employees, but also for the former employers. One of the biggest negatives of keeping too many ex-employees on the plan’s roster is the potential increased compliance cost to the plan. “Frequently a plan does not have enough participants to require an annual audit by a CPA,” says Barotz, “but may reach that total by the January 1 measurement date. In these cases it is often possible to ‘force’ former employees retaining small plan balances to exit the plan by year-end, thus averting the time and expense of an audit.”

Retain too many legacy employees can impose additional unnecessary costs to the plan and therefore hurt the growth of current employees’ retirement assets. Rafalko points this out when she reminds us, “January is an important month for plan purposes. The number of participants and eligible participants determines whether the plan will require an audit and the count is taken on the first of January. Those plans that pay a ‘per participant’ fee to a third party administrator or a record keeper usually have the count taken in January and that count is used for billings all year. If a plan can move out terminated employees before the end of the year, it might be able to avoid triggering an audit and can also reduce its plan costs for the coming year.”

#4 Encourage Maximum Year-End Contributions.
“Time waits for no man,” goes the old adage. Indeed, retirement savings are fraught with deadlines. For many, the end of the calendar represents one of those deadlines. Drew Weckbach, Certified Financial Planner, Commerce Trust Company, St. Louis, Missouri gives one such example. He says, “End of the year priorities for a solo business owner would be contributing to a solo 401k. The Solo 401k deadline is Dec 31st of the given year.”

Vorchheimer broadens this idea to a general reminder to all employees. He advises 401k plan sponsors “remind participants of the new 401k deferral limits for those that might be able to increase their savings rate – Some participants may elect fixed dollar per paycheck and not otherwise maximize their contributions.”

The end of the year often ushers in the bonus season as successful companies seek to share profits with employees. These good intentions may pose challenges in terms of compliance as employees seek to use them to jumpstart their retirement savings. Barotz says, “If year-end bonuses are paid, sponsors should ensure that employee contributions to the plan, and any company match, are made in a manner consistent with the terms of the plan document. This eliminates the possibility of a costly correction process during the subsequent year.”

#5 Required Distributions Reminder.
On the flip side of saving, we have withdrawing. While many rightly associate “Required Minimum Distributions” (RMDs) with Individual Retirement Accounts (IRAs), they are also relevant for corporate retirement plans. Barotz says, “If current or former plan participants are required to receive a plan distribution (‘required minimum distribution’) during 2014, in most cases this must be accomplished by December 31.”

Part of this is simply reminding those who fall under the RMD demands. “Make sure to send out any necessary communications to retirees about their impending annual Required Minimum Distributions,” says Massa. “Retired employees over age 70½ with an existing account balance are required to withdraw at least a minimum amount out of their 401k account annually. These notices remind employees to make their elections, or face a 50% excise tax.”

It’s more than merely communicating with participants. Service providers need to be able to execute these instructions in a timely fashion. Vorchheimer warns that 401k plan sponsors need to “assure their record keeper will process any required minimum distribution payments by December 31 as required by statute. This may not be an automatic process at some providers.”

As we enter the Holiday Season beloved by so many Americans, we can’t lose sight of these critical year-end tasks. Diligently completing them will help protect both the plan participant and the plan sponsor.

Are you interested in discovering more about issues confronting 401k fiduciaries? If you buy Mr. Carosa’s book 401(k) Fiduciary Solutions, you’ll have at your fingertips a valuable reference covering the wide spectrum of How-To’s every 401k plan sponsor and service provider wants and needs to know.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Spencer Barclay
    Spencer Barclay December 02, 18:28

    I think that each of these 5 tasks are important to do, but I am wondering if there are other tasks that may be more pressing to be done NOW. What about: benchmarking plan fees, benchmarking investments, and reviewing plan service providers? When I look at recent trends in lawsuits and audits, I see a crackdown on fees and service providers, so that is where I would start my fiduciary task list.

  2. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author December 02, 18:38

    Spencer: Thanks for the great comment. Your suggestion has been echoed by many others and is very good. I’m saving it for a future article on the annual review process. For the purposes of this article, I focused on those tasks that had a year-end deadline.

  3. melissa kaffen
    melissa kaffen December 05, 11:39

    Good article Christopher. I’m interested in #3. What are the rules for legacy participants.?

  4. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author December 05, 12:14


    Rules? None with any teeth. There’s not even a consensus among the talking heads as to whether or not ex-employees should stay in the plan. Some say “yes” because there are better fiduciary protections (true until the DOL reverts to the original ERISA rule that placed IRAs under fiduciary protection) and that staying in plans is cheaper (maybe, but not always). Some say “no” because it allows more freedom (but at the price of Caveat Emptor) and you have ready access to your funds (always true once you rollover, but still sometimes true if you leave the money in the plan).

    – Chris

Only registered users can comment. Login is sponsored by…

Order Your From Cradle to Retirement book today!

Vote in our Poll


The materials at this web site are maintained for the sole purpose of providing general information about fiduciary law, tax accounting and investments and do not under any circumstances constitute legal, accounting or investment advice. You should not act or refrain from acting based on these materials without first obtaining the advice of an appropriate professional. Please carefully read the terms and conditions for using this site. This website contains links to third-party websites. We are not responsible for, and make no representations or endorsements with respect to, third-party websites, or with respect to any information, products or services that may be provided by or through such websites.