Your 401k Report: 6 Must-Knows to Avoid Fines, Penalties, and Liability
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Executive Summary
Overview
Many business owners and HR leaders mistakenly assume their 401(k) plan is fully compliant and efficiently run simply because vendors are in place. However, without clear fiduciary role assignments and cost transparency, employers may unknowingly retain liability, pay excessive fees, and expose themselves to legal risk.
This summary outlines key fiduciary roles under ERISA, steps to uncover your actual responsibilities, and an example of a costly but common plan failure—even when fiduciaries are "in place."
Fiduciary Roles Under ERISA: Know Who Is Responsible for What
ERISA defines several fiduciary types that outline responsibility for plan administration and investment management. Not all fiduciaries are created equal:
3(16) Fiduciary
Key Responsibilities: Handles plan administration: filings (Form 5500), communications, contributions.
Employer Impact: Reduces administrative burden, but employers may still sign forms and retain risk if duties are carved out or poorly defined.
3(21) Fiduciary
Key Responsibilities: Provides investment advice only; no discretionary authority.
Employer Impact: Shared responsibility, employer is a co-fiduciary and ultimately responsible for investment decisions.
3(38) Fiduciary
Key Responsibilities: Has full discretion to manage investments, fund selection, and monitoring.
Employer Impact: Transfers full investment liability away from the employer.
402(a) Fiduciary
Key Responsibilities: Named fiduciary with full oversight of plan operations and compliance.
Employer Impact: Bears full fiduciary responsibility; may delegate, but remains accountable.
Key Point: Just hiring these fiduciaries doesn't eliminate your risk—you must understand what responsibilities they retain and what remains on your plate. 📘 View the full report to see how each role compares in depth—and how to offload the right responsibilities.
Three Actions to Take Immediately
1. Identify Your Administrative Fidcuary and Who Signs the Form 5500
- Ask your plan administrator if they are a 402(a) listed trustee .
- Determine who signs the Form 5500—if it’s you, significant fiduciary responsibility remains with you.
- Request a copy of the service agreement to understand what tasks they cover and what you’re still responsible for.
- Look for indemnity clauses that may limit their liability—even if they signed the 5500.
2. Clarify Your Investment Fiduciary Arrangement
- Confirm whether your plan uses a 3(21) or 3(38) investment fiduciary.
- 3(21): Shares duty with you; you remain responsible for fees and fund performance.
- 3(38): Takes full fiduciary control and liability over investment decisions.
- Review their fees and services. Are they proactive? Are you getting value relative to cost? When was the last time changes were made to the investment lineup based on performance and/or fees?
- If you don’t have a 3(38), you must benchmark funds annually, monitor costs and performance, and replace underperforming investments.
3. Conduct a Full Plan Analysis
- What’s needed: Your Adoption Agreement or Summary Plan Description (SPD), and your 408(b)(2) fee disclosure.
- Why: These internal documents clarify who is responsible for what and disclose all plan costs.
- The rest of your plan information (fund lineup, Form 5500, etc.) is public and can be used to identify compliance red flags, excessive costs, and legal vulnerabilities.
- Without annual benchmarking and vendor review, you may be overpaying or exposing yourself to litigation risks.
📘 Want to know what warning signs to look for in your 3(16)’s agreement? Not sure if your advisor is helping or hurting your plan? Need a checklist of what to request and how to benchmark your costs?
The full report outlines each of these things – view it here.
Real-World Example: A Costly Misunderstanding
We recently analyzed a company with approximately $8 million in plan assets that believed they had all the right pieces in place: a 3(16) fiduciary for administration, a 3(21) advisor for investments, and multiple vendors supporting their plan.
However, upon closer inspection, we uncovered hidden fiduciary responsibilities, missed compliance tasks, excessive costs, and poor investment oversight—issues that exposed the company to significant legal and financial risk.
The outcome? Employees were unknowingly losing six figures annually, and the employer faced potential litigation that could have led to a settlement in the hundreds of thousands of dollars.
👉 Want to see how this happened—and how it could be happening in your plan?
View the full report to see the exact breakdown, the mistakes made, and how they were fixed.
Conclusion: Reduce Risk, Reduce Costs, Offload Responsibility
Many employers are still liable for fiduciary breaches despite outsourcing to vendors. A thorough review of your 401(k) fiduciary structure, investment setup, and cost structure could potentially:
- Eliminate 99% of your daily responsibilities.
- Transfer fiduciary liability in alignment with DOL guidance.
- Dramatically reduce fees and improve employee outcomes.
Next Step: Get a plan analysis to uncover hidden risks, benchmark your plan, and assess the value you’re getting from your current providers.
Act Now and Receive
Fee Analysis We provide a detailed breakdown of your current plan fees and commissions—identifying how much you pay and to whom—while comparing them to industry averages. We will also show you a list of comparable, but lower cost alternatives.
Plan Benchmarking We evaluate the fees and services of your plan against similar plans in the industry to give you a clearer perspective
Recommended Corrective Actions A listing of red flags and items that need to be addressed to comply with your fiduciary duty from an administrative respect
Investment Analysis You will receive an assessment of the quality and expenses of your current investment lineup, comparing it to industry benchmarks while highlighting lower cost alternatives. Additionally, we will identify the worst performing funds in your lineup and propose alternatives that are in the top quartile of their peer group.
After receiving the analysis, and deciding to proactively move forward, employers are typically able to improve plan performance, remove tedious HR tasks and lower costs between 32%-65%. This is in addition to eliminating your fiduciary responsibility and the financial risks associated with offering a 401k to your employees.
Contact us today!
Phone: (346) 666-6845 | Email: 401k@oakharvestfg.com
Schedule Appointment: click2retire.com/401k-discoverycall
