401(k) PLANNING

A 3(38) investment manager has discretionary authority to select and monitor plan investments, reducing liability for the employer.

A 3(21) fiduciary refers to a co-fiduciary investment advisor under the Employee Retirement Income Security Act (ERISA). A 3(21) advisor provides investment recommendations for a company’s 401(k) plan but does not have discretionary control. The employer retains final decision-making authority over the investment lineup. In this role, the advisor helps with fund selection, monitoring, benchmarking, and documentation — while sharing fiduciary responsibility with the plan sponsor.

The key difference is discretion and liability. A 3(21) fiduciary provides investment advice, but the employer makes the final decisions and retains most of the fiduciary responsibility. A 3(38) fiduciary is a discretionary investment manager who has authority to select, monitor, and replace plan investments without needing employer approval. With a 3(38), the investment responsibility shifts significantly from the employer to the advisor. With a 3(21), responsibility is shared. Employers who want greater delegation and reduced liability exposure often prefer a 3(38) structure.

A properly structured 401(k) plan typically involves several key providers: Plan Sponsor (Employer) – Ultimately responsible for overseeing the plan. Recordkeeper / Third-Party Administrator (TPA) – Handles compliance testing, participant records, plan documents, and reporting. Custodian / Trustee – Holds plan assets. Investment Advisor (3(21) or 3(38)) – Provides fiduciary investment oversight. Payroll Provider – Ensures accurate and timely contribution processing. ERISA Attorney (if needed) – Assists with plan design and compliance issues. CPA / Tax Advisor – Coordinates employer tax deductions and reporting. Employee Education Provider – Delivers participant education and workplace financial wellness.

Fee benchmarking compares your plan’s expenses against similar-sized plans to ensure competitiveness and compliance with fiduciary standards

Investment lineups should be reviewed at least quarterly, with formal documentation to support fiduciary oversight.

Yes. A well-structured retirement plan is a key recruiting and retention tool in competitive labor markets.

Under ERISA, plan sponsors must act solely in the best interest of participants, ensure fees are reasonable, prudently select and monitor investments, follow the plan document, and document their governance process. Failure to do so can create personal liability exposure.

An Investment Policy Statement (IPS) is a written document that outlines how plan investments are selected, monitored, and replaced. While not legally required, an IPS is considered a best practice and helps demonstrate fiduciary prudence.

Employers can reduce fiduciary liability by documenting decisions, benchmarking fees regularly, working with a 3(21) or 3(38) fiduciary advisor, maintaining an IPS, and holding consistent investment review meetings.

Revenue sharing occurs when investment providers share a portion of fund expenses with service providers. While common, it must be transparent and reasonable. Plan sponsors should understand how revenue sharing affects total participant costs.

401(k) plan fees should typically be benchmarked every 1–3 years, or sooner if the plan experiences significant growth. Regular benchmarking helps ensure fees remain competitive and defensible under fiduciary standards

A safe harbor 401(k) includes required employer contributions that allow the plan to automatically pass certain IRS nondiscrimination tests. This structure is often attractive for owners who want to maximize contributions.

Nondiscrimination testing ensures that highly compensated employees (HCEs) do not disproportionately benefit compared to non-highly compensated employees (NHCEs). Failing these tests can limit owner contributions or require refunds

Offering a Roth 401(k) feature allows participants to contribute after-tax dollars in exchange for potential tax-free retirement income. Providing both Traditional and Roth options increases flexibility and may improve employee engagement.

A target date fund automatically adjusts asset allocation based on a participant’s expected retirement year. These funds are commonly used as Qualified Default Investment Alternatives (QDIAs) and can simplify decision-making for employees

A QDIA is the default investment selected for participants who do not make an election. Common QDIAs include target date funds, balanced funds, or managed accounts. Choosing and documenting a prudent QDIA is a key fiduciary responsibility.