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In the retirement industry, being a fiduciary carries significant responsibility. As a Plan Sponsor, you can’t avoid this duty even if you hire professionals to manage your plan. Here are seven common fiduciary mistakes that can jeopardize your 401(k).

Mistake 1: Excessive Fees and Hidden Costs

• Explanation: Excessive fees can erode the investment returns for plan participants. Hidden costs, which are not clearly disclosed, can lead to significant legal and financial repercussions for fiduciaries.
• Solution: Regularly benchmark your plan’s fees against industry standards and ensure transparency in all fee disclosures. Consider using independent third parties to audit and review the fee structures.

Mistake 2: Inappropriate Investment Options

• Explanation: Offering a limited range of investment options or options that are overly risky can prevent participants from achieving proper diversification, which is crucial for risk management.
• Solution: Ensure a balanced mix of investment options, including various asset classes like equities, bonds, and target-date funds. Regularly review the performance and suitability of these options.

Mistake 3: Failure to Monitor and Update the Plan

• Explanation: The financial markets and regulatory environment are constantly changing. A failure to monitor and update the plan can result in suboptimal investment options and non-compliance with current laws.
• Solution: Establish a regular review process to evaluate investment performance, plan costs, and participant needs. Stay informed about regulatory changes and adjust the plan accordingly.

Mistake 4: Conflicts of Interest

• Explanation: When fiduciaries have personal financial interests in the investment options they choose for the plan, it can lead to biased decisions that are not in the best interest of plan participants.
• Solution: Implement policies to identify and manage conflicts of interest. Ensure that all decisions are made solely in the interest of the plan participants and document the rationale behind investment choices.

Mistake 5: Improper Handling of Plan Contributions

• Explanation: Delaying the deposit of employee contributions into the plan can result in significant penalties and loss of participant trust. It’s also a breach of fiduciary duty.
• Solution: Establish a clear timeline and process for depositing contributions. Typically, contributions should be deposited as soon as they can reasonably be segregated from the employer’s assets.

Mistake 6: Failure to Provide Adequate Participant Education

• Explanation: Without proper education, participants may make poor investment choices, leading to inadequate retirement savings. Fiduciaries are responsible for ensuring that participants understand their options.
• Solution: Offer regular educational sessions, provide comprehensive resources, and consider tools like online calculators and investment advice services. Tailor the education programs to the financial literacy levels of your workforce.

Mistake 7: Non-Compliance with Plan Documents

• Explanation: Plan documents outline the rules and procedures for the 401(k) plan. Failing to follow these can lead to legal penalties and plan disqualification.
• Solution: Regularly review and update plan documents to ensure they reflect current operations and regulatory requirements. Train staff and fiduciaries on the importance of adhering to these documents.

Avoiding these mistakes is crucial to protect your 401(k) plan and fulfill your fiduciary responsibilities effectively. Regular reviews, transparency, and ongoing education are key to maintaining a compliant and successful retirement plan.