Business Owners and Executives – Are You Running Your Company’s 401k? BEWARE OF LIABILITY!

401K | Business Owners and Executives – Are You Running Your Company’s 401k? BEWARE OF LIABILITY!

Guest Author Roger Wohlner

Below is a great article by financial advisor Roger Wohlner. It once again points out the difference between what we can and should be doing.

There is tremendous liability in managing investments, and most of you would never dream of taking on that liability for everyone in your company – or have you already done so?


Smart Money recently ran an article depicting several small companies where either the owner or a group of senior managers were in charge of the firm’s 401(k) plan and who were largely making decisions regarding the plan on their own.

The article pointed out that many of these folks do not have a background in either investments or qualified plans.The focus of the article was to point out to plan participants that in many cases their plan was being run by folks who may or may not be qualified to make decisions as to investments offered, the custodial platform, or the plan record keeper.

My take on this article is to wonder why these small/mid-sized company owners and managers would want to take on this responsibility.

First of all, these individuals would be considered plan fiduciaries,which means that they can be held personally liable under certain circumstances for doing a poor job. Effectively managing a 401(k) plan involves taking the time to select and monitor the investments, overall plan expenses, as well as the fees and performance of all plan vendors.

Today it seems that business owners and their senior managers have more on their plates than ever. Running a 401(k) plan is about more than the investments. Total plan cost has always been a key issue and is coming more into the limelight as the spotlight shines on the issue of Fiduciary roles and obligations.

Selection and monitoring of Target Date funds is receiving much attention in the press and in Congress in light of the losses suffered in 2008 by some of the shorter maturity date funds. Defaulting to the funds offered by a bundled provider is not always the right answer, this option will likely come under more and more scrutiny over the next few years.

Even if the business owner is a knowledgeable investor in his/her own right, does this knowledge translate into the ability or the time to select and monitor all aspects of a solid retirement plan that is a great option for the majority of the company’s employees?

I’ve seen instances of plans that will take the suggestions of their bundled provider (a fund company such as Vanguard, Fidelity, or T. Rowe, or an insurance company such as Prudential) and implement those suggestions as the plan’s investment lineup. The representatives of these companies are not plan fiduciaries, but company managers running the plan are. I doubt that these folks are trying to do the plan any harm, but at the end of the day their loyalty is to their employer not the plan participants.

If your company’s plan is via an insurance company, your agent or registered rep may be providing investment advice to the plan. Again, this person is likely not a fiduciary, they receive commissions paid by the provider and their loyalties are at best divided.

In the interest of full disclosure I am a fee-only consultant to 401(k) plans providing advice to small/mid-sized plans. If this post seems self-serving I apologize, but this is a key issue for both owners/managers of these companies and their employees.

In my opinion, running the company’s 401(k) plan requires a level of diligence and expertise that the “do it your selfer” business owner often does not have. Pulling out a Morningstar report on the funds once or twice per year does not, in my opinion, constitute proper diligence and monitoring of the plan.

For further reading in this area, please see Roger’s prior posts:

The Process of Monitoring Investment Holdings

Characteristics of a Good 401(k) Plan

Hellish Retirement Plans

Here is a link the Smart Money article that inspired this post Who’s Running Your 401(k): An Overview

Roger Wohlner,CFP® is a Fee-only financial advisor with Asset Strategy Consultants in Arlington Heights, IL. 847-506-9827; rwohlner@comcast.

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