Corporate 401k Plans

The devils in the details and we strive to make improvements on the 401k plan that holds your hard earned dollars.

If you are a business owner or a participant of a 401k plan, can you answer these following critical questions?

Who signs off on the 5500 form and does that person understand their legal obligations and liabilities?
Does your plan have a 3(21) Fiduciary?

3(21) fiduciary provides investment advice and recommendations to a retirement plan sponsor while the employer retains final decision-making authority. Under this arrangement, the advisor shares fiduciary responsibility with the plan sponsor by helping monitor investments, evaluate fund performance, and support prudent plan governance. (Advisor recommends; employer decides.)

Does your plan have a 3(38) Fiduciary?

3(38) fiduciary assumes discretionary authority to select, monitor, and replace investment options on behalf of the retirement plan. This arrangement transfers much of the investment fiduciary responsibility from the employer to the investment manager, helping reduce administrative burden and fiduciary risk. (Advisor manages; employer oversees the fiduciary.)

Do you understand the level of liability that you take on with either of these fiduciaries?
Do you have an Self Directed Brokerage Account (SDBA commonly referred to as a carve out) option on your plan?

Example of a Poor Performing 401k

A group of former Dell employees filed a proposed class action alleging that Dell’s 401(k) offered poorly performing investments, including actively managed target-date funds that underperformed readily available alternatives. According to the complaint, the company relied on custom benchmarks that failed to capture the lagging returns, resulting in alleged losses of more than $318 million for plan participants.

This situation underscores why thoughtful plan design, prudent investment selection, and robust fiduciary oversight are critical for any corporate retirement plan.

Investment selection matters: Target-date and other plan funds should be carefully reviewed against broad, transparent benchmarks to help ensure they are competitive and appropriate for participants.
Fiduciary standards are strictly enforced: Plan sponsors can be held accountable if investment options underperform relative to available alternatives without appropriate due diligence.
Participant flexibility reduces risk: Offering a broader range of investment choices, such as self-directed brokerage options, can help meet diverse employee needs and reduce susceptibility to concentrated underperformance.
Professional oversight adds protection: Engaging an independent fiduciary (e.g., a 3(38) investment manager) to manage selections and sign plan filings (such as the DOL Form 5500) can help strengthen a plan’s governance and compliance.

If you’d like to discuss how these trends might impact your company’s retirement plan design or fiduciary responsibilities, we’d be happy to talk through options that align with your goals while helping manage risk.