New To Your CFO Role? In Charge of the 401(k)? Read This.

May 18, 2018 by Evan Ross
CFO transition plan template

Are you the new CFO of a small or mid-sized business?

If so, you are probably knee deep in learning the company’s financial condition while developing strategies for growth and efficient use of capital. But in addition to being in charge of complex financial models, are you also a fiduciary for the company’s 401(k) plan?

While delving into the details of the 401(k) may not be at the top of your list of priorities, it’s important to know if the plan is run efficiently and at a low cost. In this post, we’ll discuss several reasons why evaluating your company’s 401(k) is important, and how you can do it.

401(k) Audits – Maintaining Government Compliance

Examining the 401(k) is important not only because you may find ways to help employees save more for retirement with lower fee alternatives, but also because the Department of Labor emphasizes the monitoring of 401(k) plan expenses. In their booklet, “What is the Significance of Being a Fiduciary?” the DoL lists “Paying only reasonable plan expenses” among the key responsibilities of being a fiduciary. And in another publication, “Understanding Retirement Plan Fees and Expenses,” the DoL reminds plan sponsors that “many of your decisions will require you to understand and evaluate the costs to the plan.” The booklet goes on to say:

Among other duties, fiduciaries have a responsibility to ensure that the services provided to their plan are necessary and that the cost of those services is reasonable. This responsibility is ongoing. After careful evaluation during the initial selection, you will want to monitor plan fees and expenses to determine whether they continue to be reasonable in light of the services provided.

But it’s not only the DoL that is concerned with plan expenses.

401(k) Lawsuits – They’re More Common Than You Think

As participants have learned more about 401(k) fee structures they have become more prone to sue plan sponsors when they perceive a lapse in fiduciary duty. As a result, some CFOs have been among those targeted by litigation, given their role in plan governance.

Plaintiffs have argued, for example, that recordkeepers were hired without competing bids, or that investment fees were not appropriately benchmarked. That’s a reminder that benchmarks offered by the service providers themselves may not serve as reasonable comparisons for your company’s plan.

And then there’s the minefield of mutual fund share classes. Lawsuits have also targeted CFOs who accept high cost share classes offered by providers, or don’t question revenue sharing arrangements.

So rather than something you planned on doing “eventually,” you may want to quickly draw up a process for reviewing and benchmarking both administrative and investment 401(k) costs.

Of course there is more to being a fiduciary than limiting the threat of lawsuits. Here are three steps to mastering your company’s 401(k) as a new CFO.

Step 1: Review 401(k) Administration Processes

You may find yourself spending considerable resources to reduce the risk of an IRS or DoL audit. And that includes making sure that Form 5500 is completed accurately without any red flags. This can lead to an ever growing list of oversight duties such as ensuring contributions are deposited on a timely basis, identifying and enrolling eligible employees, and sending employees required notices about the plan.  

Step 2: Evaluate Your 401(k) Providers

A big part of your introduction to the company 401(k) will be learning about the third party providers servicing the plan. You will want to learn which tasks are performed by the providers and which are up to the company (perhaps you!) to carry out. Finally, you will need to understand how much liability these providers are taking on, and how much liability you have on your shoulders. For example, if a third party helps you complete Form 5500, but you are the one you who signs it, then there’s a good chance that you, not the provider, are acting as a fiduciary. That means you are responsible for any administrative shortcomings.

Step 3: Understand Your Fiduciary Responsibilities

As you take on your new tasks as CFO, be sure to understand your role, if any, regarding selecting investments for the 401(k). Will you have authority to approve the fund line-up? If so, you are a fiduciary. If a third party, such as a broker or insurance company, is merely recommending investments for your approval, they are not taking on all of the investment risk.

After your evaluation of the plan, you may decide you want to outsource investment duties, administrative tasks, or both! That would give you more time to run the actual business.  And if you hire a provider who will take on fiduciary responsibilities along with their new duties, you could reduce your liability associated with the 401(k) as well.

3(16) and 3(38) fiduciaries – a great combo

If you want to ease your administrative burden and hire a provider who will act as a fiduciary, then you want a 3(16) fiduciary. At ForUsAll we offer full ERISA 3(16) fiduciary services. We take on the work and liability for administering your company’s 401(k). We manage everything from day-to-day operations to reviewing and signing the Form 5500. Our innovative technology eliminates manual reconciliation of employee election changes and automatically tracks employee eligibility. And ForUsAll software runs dozens of compliance checks each payroll cycle. This allows us to catch problems early and take timely corrective measures.

If you want to fully outsource investment selection and accountability as well, then you’ll also want a 3(38) fiduciary. This means a third party will be responsible for selecting and reviewing the funds in your line-up. As an independent advisor, our 3(38) fiduciary expertise means we put your employee’s interests first as we select and monitor your plan’s investments. We select a menu that will allow participants to create diversified portfolios to meet their savings and retirement goals.  And all at a low cost.

If you like the idea of outsourcing tasks and liability, and want to work with a provider who puts fiduciary responsibilities in writing, give us a call today.

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Evan is on a mission to use the power of storytelling to change the world for the better. And what better way to change the world than to help everyday Americans retire with comfort and dignity? After studying English & Creative Writing at UC Irvine, Evan honed his marketing craft at a digital advertising agency before being put in charge of building an automotive tech company's marketing department from the ground up. Now, Evan creates content and communications that help HR professionals reduce their liability and save time on tedious 401(k) admin work.