The Biggest Red Flag For 401(k) Providers

The Biggest Red Flag For 401(k) Providers

January 13, 2020

Sponsoring a 401(k) plan is a big responsibility. The laws governing workplace retirement plans are complex and the tasks required can be arduous and time-consuming. Because of this, most 401(k) plan sponsors outsource a lot of the administrative and technical duties to professional providers. It can be a very smart move, especially for small business owners, but it isn’t without risk. 

Plan Sponsor’s Fiduciary Duty

When sponsoring a retirement plan, an employer becomes a plan fiduciary. Being a fiduciary comes with certain legal obligations, namely:

  • To act solely in the best interest of the plan participants and their beneficiaries
  • To carry out duties prudently
  • To follow the plan documents
  • To diversify plan investments
  • To pay only reasonable plan expenses 

Not only is the plan sponsor required to fulfill the above, but they are required to make sure anyone that they outsource responsibilities to fulfills the above as well. Having a 401(k) plan provider do most of the work running the plan does not free the plan sponsor of the responsibility to ensure that the plan is being run properly.

It is important for a plan sponsor to constantly monitor their plan providers. They must stay alert to warning signs that the provider may not be meeting their fiduciary obligations. This is crucial for plan sponsors because any provider failure becomes a plan sponsor failure and they can be held legally liable.

What Is The Biggest Red Flag For 401(k) Providers?

What do plan sponsors need to be watching out for with their 401(k) providers? The biggest red flag is arrogance. Arrogance is the quality of having an exaggerated sense of one’s own importance or abilities. Arrogance means that you think you already know it all and can do it all.

Why is arrogance so dangerous for 401(k) providers? Arrogant providers refuse to learn, change, or adjust. After all, why would they if they already know everything? 

Agility, the ability to learn, change, and adjust, is crucial for 401(k) providers. That is because the 401(k) landscape is constantly changing: laws and regulations change, products change, and best practices are always changing.

A 401(k) provider who is too arrogant to learn new things, make adjustments, and change with the times will get the retirement plan and its participants into trouble. At best, they will provide subpar service; at worst, they will violate laws and fail to maintain compliance. Both of those can get plan sponsors into trouble because even subpar service can be a violation of a plan sponsor’s fiduciary duty to pay reasonable fees and act in the best interest of plan participants. 

What Plan Sponsors Need To Do

Plan sponsors can delegate tasks, they can delegate authority, but they cannot delegate all of their fiduciary duties. Your business owner clients who sponsor retirement plans need to watch out for warning signs of arrogance and monitor to make sure those to whom they delegate are fulfilling their fiduciary duties. For more information about delegating fiduciary responsibilities or expert help with a 401(k) plan, email me today at

About Kenny Phan

Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses around the nation, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.