Ensure Compliance and Manage Your Risk

A 401(k) plan is a great benefit your company offers its team, but it’s a legal and financial minefield. One missed compliance requirement, an unnoticed administrative error or an underperforming service provider can expose you to costly penalties, regulatory scrutiny or even lawsuits. As a plan sponsor, you’re juggling complex fiduciary responsibilities while trying to avoid risks that could jeopardize both your business and your employees’ retirement savings.

A fiduciary audit is your safety net. By identifying hidden risks, uncovering inefficiencies and ensuring compliance with ERISA regulations, you can stay ahead of potential problems before they spiral out of control. It’s how you protect your plan, your employees and your company’s reputation.

Understanding Fiduciary Obligations

When you establish a 401(k) plan, you take on fiduciary duties as outlined in the Employee Retirement Income Security Act of 1974 (ERISA). This means making decisions in the best interest of plan participants while managing assets responsibly. Failure to fulfill these obligations can result in regulatory penalties and legal exposure.

A common misconception among plan sponsors is that outsourcing administrative tasks to third-party service providers absolves them of liability. However, ERISA mandates that plan sponsors actively oversee these providers and ensure that they fulfill their roles effectively. Delegation does not eliminate responsibility. Careful selection and continuous monitoring remain critical.

Defining Fiduciary Roles

Under ERISA, a fiduciary is any individual with discretionary authority over a plan’s management, administration or investment decisions. This typically includes employers, administrators, financial advisors and investment managers.

Plan sponsors and administrators are responsible for daily operations, including regulatory filings, participant notifications and accurate recordkeeping. Even when outsourcing these functions, oversight is necessary to confirm compliance and prevent errors that could lead to penalties or legal action.

Fiduciaries may be explicitly designated in plan documents or may assume the role based on their actions. If a person or entity influences decision-making within the plan, they may be held accountable as a fiduciary, regardless of title.

Key Fiduciary Responsibilities

To fulfill fiduciary obligations, sponsors must adhere to the following fundamental principles:

• Acting solely in the best interest of plan participants
• Exercising diligence and expertise in decision-making
• Complying with plan policies and legal requirements
• Diversifying investments to reduce risk exposure
• Ensuring reasonable plan expenses and fees

These principles may seem broad, but regulatory guidelines provide clarity on best practices. Conducting a fiduciary audit is a proactive way to evaluate compliance and identify potential vulnerabilities before they escalate into serious issues.

Common Challenges and How to Address Them

Even well-managed plans can encounter compliance challenges. Below are some frequent pitfalls and strategies to mitigate them:

• Inadequate Oversight of Service Providers. Failing to monitor third-party administrators, recordkeepers or financial advisors can lead to regulatory violations or mismanagement. Many sponsors assume that hiring external providers eliminates their liability, but active oversight is still required. A fiduciary audit helps assess service provider performance, ensuring alignment with compliance requirements and contractual expectations. Regular reviews and structured evaluation processes ensure that fees remain competitive and services are delivered effectively.
• Errors in Recordkeeping. Inaccurate documentation, particularly regarding contributions, loan distributions or hardship withdrawals, can create compliance risks and trigger penalties. Poor recordkeeping can also complicate regulatory audits and participant inquiries. A thorough fiduciary audit ensures that plan records are complete, accurate and well-organized. Implementing automated tracking systems and conducting periodic internal reviews can further strengthen compliance efforts.
• Misinterpretation of Compensation for Contributions. Errors in calculating employee contributions often stem from misunderstandings about eligible compensation. For example, bonuses, overtime or commissions may be mistakenly excluded, which leads to compliance violations. You can validate payroll calculations and alignment with plan documents with a fiduciary audit. Consulting with experts can also clarify compensation definitions and prevent costly miscalculations.
• Late Contribution Deposits. Delays in depositing employee deferrals can result in Department of Labor (DOL) penalties, requiring sponsors to make corrective contributions for lost earnings. Even minor delays can invite regulatory scrutiny. An audit can confirm that contributions are being processed promptly. Synchronizing payroll with plan administration and automating deposits can reduce errors and mitigate risk.

Thorough, regulatory-compliant 401(k) fiduciary audits can help you uncover and address challenges. That way you can proactively address compliance concerns and strengthen your plan management strategy.

Get a Fiduciary Audit and Protect Your Future

When it comes to managing your 401(k) plan, you can’t afford to take chances. The risks are real if something goes wrong. Fiduciary audits are designed to give you peace of mind.

Our fiduciary audit team holds the Accredited Investment Fiduciary Analyst® (AIFA®) and Certified Plan Fiduciary Advisor (CPFA) credentials. These industry-leading certifications demonstrate deep ERISA expertise and a commitment to fiduciary excellence. By working with credentialed professionals, you can ensure your plan is not only compliant but also optimized for efficiency and long-term success. And you’ll gain a strategic partner dedicated to protecting your company, your employees and your bottom line.

Contact Jessica Harrington today at 843-665-6321 or [email protected] to learn more.

Let’s take the stress out of compliance and turn it into a competitive advantage.

Disclaimer: This article is for informational purposes only and should not be considered legal advice. If you have specific questions or concerns about your 401(k) plan, consult with a qualified professional to ensure compliance and protect your organization and your employees.

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