Laws & Regulations

The legal and regulatory world of 401(k) plans can be confusing, especially with lawsuits and settlements constantly changing the industry. Here we’ll outline a few of the key aspects that an employer, called the Plan Sponsor, should be aware of, while the more complex issues are generally handled by the related parties to a plan.

Most of the rules stem from the Employee Retirement Income Security Act of 1974 (ERISA). ERISA was written to protect the retirement assets of Americans by implementing rules that Qualified Plans must follow to ensure that plan fiduciaries do not misuse plan assets.1


Fiduciary Liability

As plan sponsors, employers need to have a clear understanding of their fiduciary liability. A good rule of thumb to guide your actions is to always act in the best interests of the plan participants – your employees – and plan beneficiaries, with the exclusive purpose of providing benefits to them.2

Best practices include:

  • Forming a plan oversight committee that meets regularly
  • Having a formal Investment Policy Statement (IPS)
  • Following the parameters of the IPS
  • Always documenting the processes followed to monitor the plan
  • Holding periodic compliance reviews of the plan

Common mistakes to avoid include:

  • Relying on non-fiduciary service providers for investment monitoring and advice
  • Untimely remittance of participant contributions to the plan
  • Lack of a formal process for investment selection and monitoring
  • Limited or no oversight of plan service providers
  • Failing to follow the plan document
  • Lack of awareness of plan fees compared to other plans of a similar nature
  • Lack of communication about fees to participants. Fees can be found in the 408(b)(2) form

As a fiduciary, the plan sponsor is liable for losses incurred by a plan if the plan sponsor makes investment decisions that specifically cause harm suffered by the plan.

While most employers look for the assistance of qualified financial or investment professionals, it does not completely eliminate the fiduciary’s responsibility. The fiduciary is still required to review the investigative data of the consultant, and document that the fiduciary believes the decisions made were in compliance and done so in good faith.


Transferring From One 401(k) Provider to Another

When transferring your 401(k) retirement plan to a new provider, there are a few key steps that must be made to stay in compliance. The steps begin once a contract has been signed to move your 401(k) plan to a new provider.

First, review your contract with the terminating 401(k) provider to check the notice requirement for termination of services. Next, you will need to send a termination letter to your current 401(k) provider. This will notify the company of your intent to terminate your 401(k) plan, but more importantly, it outlines what duties are expected of each party.

Your Duties

  • Informing them that you will send liquidation and transfer instructions
  • Notifying them that you expect them to provide all year-end government filings for the year ending 12/31/XX

Their Duties

  • They will inform you of the initial date of participant blackout period, which must be a minimum of 30 days from notification.
  • They will inform you of the date funds will be transferred.
  • They will inform you of the anticipated date for reporting on the liquidation of assets.3

Finally, you will need to send a blackout notice to all of your employees, notifying them that their 401(k) investment accounts will be frozen 30 days from the date the notice is sent. This notice will inform the participants that they will not be able to make any changes to their accounts until the transfer is complete. Once the transfer has been completed, plan participants will be able to resume management of their individual 401(k) investment accounts.


Additional Information

This is complex, critical information, and it changes frequently. If you have questions or want to be sure you have the latest information, please contact us. We can explain it to ensure you are in compliance.


1“Employee Retirement Income Security Act – ERISA.” Investopedia. N.p., n.d. Web. 04 Sept. 2013.

2“Fiduciary Responsibilities And Related Risks All Plan Sponsors Should Be Aware Of | The Metropolitan Corporate Counsel.” The Metropolitan Corporate Council. N.p., n.d. Web. 04 Sept. 2013.

3PensionSite.org. Step-by-Step 401(k) Plan Administration Transfer. Winter Park, Florida: PensionSite.org, 2007. PDF.