The Biggest Mistakes Plan Sponsors Make

If you are a plan sponsor, you are probably aware that there are more liabilities and regulations to take into consideration than ever before. There are concerns about IRS rules, fiduciary responsibilities, and tax law changes. Failure to comply with regulations can result in an expensive disaster, with the ever-looming threat of losing your plan’s qualified status.

In our work with retirement plans, we’ve come across a variety of errors and mistakes. We can usually identify and correct plan errors before they cause major issues, but once in a while, there are complex problems that we can’t solve. Here are the top five mistakes we’ve seen plan sponsors make:

1. Failure to Follow an Investment Policy Statement

The goal of a retirement plan is to help participants save for retirement through investments. Plan sponsors have a significant responsibility to work with an advisor to select appropriate investments, replace poor performers, and verify that the fees are reasonable. It’s critical to create and follow an Investment Policy Statement to keep your plan’s investments up-to-date and within DOL guidelines.

2. Not Understanding Their Role as Fiduciary

Even if they aren’t aware of it, many of the tasks involved in operating a plan give the person performing them the role of a fiduciary. This means that they are required to adhere to ERISA rules for a fiduciary, including:

  • Acting solely in the interest of plan participants
  • Carrying out their duties prudently
  • Following the plan documents
  • Diversifying plan investments
  • Paying only reasonable plan expenses

ERISA requires expertise in numerous areas, such as plan administration and investments. If they lack that expertise, a fiduciary is obligated to hire someone with appropriate professional knowledge to oversee those functions.

3. Not Having a Fidelity Bond

In general, plan sponsors must be covered by a fidelity bond. A fidelity bond is an insurance instrument that protects the plan against losses. The plan’s fidelity bond must cover at least 10% of plan assets with a minimum of $1,000 and a maximum of $500,000. Not having a fidelity bond could potentially increase the chances of a DOL audit.

4. Not Reviewing Service Providers

As part of a plan sponsor’s obligation to have only reasonable plan expenses, they are required to evaluate the performance and fees of their service providers. For the arrangement to be deemed reasonable, service providers must provide updates and reports regarding their fees and performance. Make it a habit to review annual updates from your service providers to ensure their performance and fees are in the best interest of your participants.

5. Not Staying On Top of Changes

April 30, 2016 was the IRS deadline for employers to restate their 401(k), profit-sharing, or other defined contribution retirement plans. Plans that did not comply with the restatement deadline could potentially lose their qualified status or face fines of up to $15,000. It’s the plan sponsor’s responsibility to stay up-to-date on new requirements and comply promptly.

The retirement plan landscape is as complex and challenging as ever. On top of many other responsibilities, plan sponsors have the difficult job of acting as their plan’s fiduciary. Partnering with an experienced and qualified retirement plan professional may help reduce fiduciary liability and avoid costly mistakes.

To learn more about how we aid plan sponsors, call us at (949) 718-1600 or email us at

Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.

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