How Key’s 401(k) Pooled Employer Plan Can Significantly Reduce Fiduciary Risks

Being a Plan Fiduciary is Serious Business

Employers that offer a 401(k) retirement plan to their employees take on significant fiduciary risk and responsibilities as well as administrative duties. These fiduciary responsibilities are often held personally by the senior executives/owners of an organization, so it is important for all involved to understand the roles and obligations in managing a single-employer 401(k) plan.

The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses, according to the Department of Labor (DOL).

Potential Financial Penalties or Legal Liabilities

Fiduciaries who do not follow the principles of conduct from the DOL may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets. Being personally liable means that your personal assets may be at risk and you could potentially face jail time if you are found guilty of breach of fiduciary duty. In addition, plan fiduciaries can be subject to civil and criminal penalties and fines.

401(k) Plan Management and Fiduciary Responsibilities

Examples of essential areas for managing a 401(k) plan, including fiduciary responsibilities, include the following. Note that in a traditional single-employer 401(k) plan, while some of these services can be outsourced, most of the fiduciary risk still typically lies with the employer, including senior executives.

Investment selection and monitoring

• Employers must prudently select and monitor investment options offered.

Compliance and regulatory requirements

• Employers must comply with various regulations, including Employee Retirement Income Security Act (ERISA) and DOL regulations.
• Examples include providing required participant disclosures, filing annual reports, and monitoring contribution limits.

Fees and expenses

• Employers are responsible for ensuring the plan’s fees and expenses are reasonable and adequately disclosed to participants.
• Failure to monitor and control these costs can erode participants’ retirement savings over time.

Participant education and communication

Employers must also provide participants with sufficient information and education about the plan to help them make informed decisions about their retirement savings.

401(k) Plan Lawsuits Are on the Rise — Why Managing Fiduciary Risk Can Be Critical to Your Organization

There continues to be an increase in the number of 401(k) plan lawsuits largely related to breach of fiduciary duty, including those of some of the largest companies. Some recent 401(k) lawsuits mentioned in the news include well-known companies such as Amazon,¹ American Airlines,² and UnitedHealth Group.³ UnitedHealth Group, as an example, recently agreed to a $69 million settlement in a class action lawsuit involving fund selection for its 401(k) plan.³

How Does Key’s 401(k) PEP Help Employers Reduce Fiduciary Risk?

Key’s 401(k) pooled employer plan (PEP) can help significantly reduce the fiduciary risk your organization may have in managing its retirement program. This is because the 3(16) plan administrative fiduciary risk and 3(38) investment fiduciary risk are transferred to professional fiduciaries who have the expertise and resources to manage the plan effectively. Importantly, this can also result in better investment options and improved outcomes for participants.

Note that, while most of the fiduciary responsibilities are transferred, individual employers still do maintain some level of fiduciary responsibility. This would include the decision to join our PEP and ongoing monitoring of the PEP and its service providers.

The bundled service offering is shown in the following table: