Opinion: Are you the trustee of your 401 (k) plan?


No one opens a small business with the dream of being a part-time accountant. Unless, of course, your business is bookkeeping.

Ditto with tax filing deadlines and the myriad legal and insurance issues that can arise in any industry.

You probably started your business because you love taking care of your patients or building beautiful homes. Maybe you own a flower shop or a family restaurant.

So why are you the trustee of your company’s 401 (k) plan?

Back when you started your plan, your intentions were good. You needed tax-efficient income for your own retirement. Attracting and retaining the right employees with a 401 (k) plan was a side benefit, something you could offer in addition to cash and health insurance.

You probably barely remember the legal jargon for all of these forms of initial plans. Here’s a comparison to the real world: if you don’t know who the trustee is, it’s a red flag. You are the owner of the business.

Trustee is a word that many use lightly or mistakenly. But it’s a real thing, and the consequences of a misunderstanding are as real as dropping your payroll, not paying taxes, or deciding to represent yourself in a tough contract negotiation – go there. not.

If you are unsure, ask yourself a few basic questions: Would you feel comfortable saying that you have done the research to show that the investments in your 401 (k) plan are “conservative”?

Do you have written procedures for selecting investments? Are you acting according to the rules of your plan? Have you consulted a qualified lawyer on this matter?

The hair stands on end, doesn’t it?

There are a lot of important things in the single word “careful”. Unsurprisingly, court cases against small business 401 (k) plans are starting to flood the courts.

Employees and former employees ask their bosses to explain why their investments are falling short of expectations.

And that’s just the most basic role of a true plan trustee: managing investments. Another important part of the job is making sure that the investments in your plan are reviewed periodically (at least every three years) and that the review process is rigorous.

It takes time and requires a level of expertise that most small businesses just don’t have.

At a minimum, having a consultant review your plan for benchmarking can protect you somewhat from legal risk. But now comes the real groundwork: reviewing fees, completing paperwork on time, and providing regular investment training to your employees.

If this is starting to sound like something a specialist should be doing, it’s because it’s something a specialist should be doing. Most large companies have highly paid in-house finance and legal staff just to oversee the details of the pension plan, cross ts, and point i’s throughout the year.

Get the checklist

Opening a small business does not relieve the owner of these same responsibilities. Yet pension providers often fail to illustrate the importance of these tasks.

5500 forms must be filed, participants must have written descriptions of the plan and any changes, employees must obtain benefit statements, expense information, prudent and diversified investments, and many other technical points.

If you’re not sure where to start, consider printing out this fiduciary checklist.

Let’s say you manage to do it all right and get the right help. Yes, your employees can still sue you if they are unhappy with the results of their retirement investments.

Markets tend to go down every now and then and this can generate a series of lawsuits from near-retirees who think it’s your fault that stocks fell at the wrong time for them. But it will be much more difficult to prove that you have done wrong if you tick all the fiduciary boxes.

Doing this cost effectively takes expertise, experience, and time – a valuable commodity that small business owners should “buy back” whenever they get the chance.

Amanda Thurman helps small businesses realize the potential of their 401 (k) plan with Better K from Rebalance. Follow Amanda on LinkedIn or Twitter @ Rebalance 360.


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