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A Guide For 401(k) Plan Sponsors

When Do 401(k) Plans Get in Trouble?

Not Completing Required Plan Audits

Plan Audits are required when a plan reaches 120 eligible employees (for some plans the number is 100). This required audit will take place every year until they are under 80 eligible employees. If anyone has a balance in the account, they are numbered as eligible employees.

The average cost for a required plan audit is $10,000 per year charged to the company and may not be deducted from participant accounts. This amount can be more if your records are not complete or in order or in the format auditors need them. Your company might need to furnish on average 30+ hours of tedious time to prepare for the audit each year.

Having TruNorth on your team can help make the process easier and less expensive.

Investigations by the Department of Labor

The Employee Benefits Security Administration is an agency within the Department of Labor that conducts investigations into companies for violations including ERISA violations such as:

  • Not submitting contributions in a timely manner, once you take it out of an employee account it MUST be invested in a timely manner
  • Failing to operate the plan prudently and for the exclusive benefit of participants
  • Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals
  • Failing to properly value plan assets at their current fair market value, or to hold plan assets in trust
  • Failing to follow the terms of the plan (unless inconsistent with ERISA)
  • Failing to properly select and monitor service providers
  • Taking any adverse action against an individual for exercising his or her rights under the plan (e.g., being fired, fined, or otherwise being discriminated against)
  • Criminal violations such as embezzlement, kickbacks, and false statements
Learn more from the DOL
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IRS Audits

Different from required plan audits, the IRS conducts audits of Employee Retirement Plans.  The flowchart to the left shows the process the IRS uses, and potential steps required to correct issues.

It can be a long, drawn-out, and  labor intensive process.

Lawsuits by Disgruntled Employees

According to an article in Forbes 401(k) lawsuits are on the rise, with a record number of lawsuits in 2020. Hefty fees, expensive options with low returns, limited investment options, and draconian terms attached to the 401(k) plans all characterized the proposed class-action lawsuits. ”    
Read the full article here.

The Center for Retirement Research at Boston College states “Employers with 401(k)s are required to administer their plans for the “sole benefit” of workers, a standard that has been the subject of substantial litigation” and identifies 3 main reasons why 401(k) plans are sued: inappropriate investment options, excessive fees, and self-dealing.”
Read the brief here.

Conflicts of Interest

Conflicts of interest arise when an employer or service provider puts their own interests above of the needs and benefits of the plan participants.  Some examples include, but not limited to, kickbacks, quid-pro-quos, and using broker proprietary funds.

Taking your sponsor obligations seriously and working with 401(k) plan experts can help you understand and avoid common conflicts of interest.

Learn more from the IRS
The best way to keep your plan in compliance is to work with knowledgeable financial advisor. 

The best way to keep your plan in compliance is to work with knowledgeable financial advisor. 

TruNorth Investment Management has the knowledge and resources to keep up with the ever changing regulations.  We can help you keep your plan in compliance and avoid common pitfalls that might get your 401(k) plan in trouble.

A Guide for 401(k) Plan Sponsors

A good 401(k) plan attracts top talent, builds high performance teams, and increases employee retention. 

Learn more

You Need a Team of Experts

Hiring a best-in-class team can help you offer a retirement plan that best meets the needs of your employees and your company and adhere to rigorous ERISA standards.

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Benchmarking Your Plan

Having a knowledgeable 401(k) advisor benchmark your plan is one of the easiest and most beneficial actions you can take as the plan sponsor.

Learn more