Is your 401(k) working for you the owner group and your employee? If your 401(k) plan isn’t a good match for your company, it may leave your company at a competitive disadvantage for attracting and retaining talent and may also limit contributions for owners. All 401(k) plans must undergo certain compliance testing requiring a certain level of employee participation, and low participation rates from employees in general, tend to result in contributions being returned to owners, resulting in additional taxes.
Making sure your company has expert external service providers is crucial to minimizing these risks, while also serving as a pivotal part
of plan administration and oversight. The right provider will not only deliver high-quality service but will help in designing and administering the best plan for your company.
If you feel it is time to consider a switch in your providers, there are several things to keep in mind:
Consider Your Options Before You Begin
Open Communication with Auditors. We are here for you! We audit many varied plans that have many different third-party administrators, custodians and advisors. We are always happy to connect you with high-quality service providers based on our and our clients’ first-hand experiences.
Timing Is Important
Of course, your company’s seasonality should be considered, but keep in mind that when a plan switches at any time mid-year, it is often much more difficult and costly to perform the DOL required audit. Switching providers at year-end is more seamless as there is only one service provider and one set of reports.
Make Sure You Can Access Your Data
When a plan changes service providers, sometimes full access is lost to the websites and reports needed for record retention as well as for compliance purposes, such as the audit. It is important to maintain access to the information. If we know about the change in advance, we can help you download the reports you’ll need.
Planning ahead is key to avoiding disruptions. Employees may need to attend a few meetings or educational events. Make sure you work with the new service provider and your payroll service to address any technical details to ensure there are no payroll disruptions during the switch. A black-out notice will also be required during the switch. This informs the participants that the benefit plan is switching service providers and there will be a certain period where deferrals will not be made and the participants will be unable to access the website. You will also need records of the fund mapping. This mapping provides information on the fund transfer process between the service providers. Lastly, if your administrator provides the ERISA bond, it is important to make sure your new service provider offers an ERISA bond or that you get one separately.
As always, we would be happy to schedule a meeting or a call to go over any of these items in more detail.
By Molly Mayer, Associate Accountant