As a 401(k) plan sponsor, you take on important fiduciary responsibilities — both for your own company and through the service providers you appoint. This article explains what it means to be a fiduciary, who the fiduciaries are in your Gusto 401(k) plan, and what you need to do to meet your ongoing obligations.
401(k) plans are best known for the tax advantages they offer employees saving for retirement. A less visible but equally important principle is the protection that the Employee Retirement Income Security Act of 1974 (ERISA) gives participants against the acts or omissions of those who operate the plan.
To protect workers' access to fair and secure retirement savings, Congress and regulatory agencies set strict standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans. They also created remedies and sanctions for any breach of those responsibilities.
One safeguard ERISA requires is that anyone who exercises control over a retirement plan is held to the highest standards of fiduciary conduct. To help meet these standards, employers often rely on professional service providers. When you do, it helps to understand the roles and responsibilities of the service providers who act as fiduciaries to your plan (and those who do not), along with the fiduciary roles of your company and the individuals acting on its behalf.
Every employee benefit plan must name at least one fiduciary with the authority to control and manage plan operation and administration. A fiduciary's core obligation is to act solely in the interest of plan participants and beneficiaries.
To meet that obligation, fiduciaries have several core duties:
Operate the plan for the exclusive purpose of providing benefits to its participants
Make sure plan expenses are reasonable
Act with due care, skill, prudence, and diligence
Diversify the plan's investments to minimize the risk of significant losses
Follow the terms of the governing plan documents
Fiduciaries must also avoid prohibited transactions as defined under section 406 of ERISA. A prohibited transaction is one involving the transfer, use, or borrowing of plan assets by any party in interest. ERISA defines a party in interest very broadly. It includes fiduciaries, non-fiduciary service providers, company owners, directors or officers, family members, plan participants, and company employees (unless they are otherwise entitled to get benefits from the plan).
Prohibited transactions also cover conflicts of interest or self-dealing by a fiduciary. In short, fiduciaries must not let anyone benefit from plan assets except the plan participants and beneficiaries.
Fiduciaries to a plan can include a plan sponsor, trustee, plan administrator, investment manager, and other individuals who exercise control over the plan.
Your Gusto 401(k) plan has several fiduciaries, each with a distinct role.
Your company is both the plan sponsor and the named fiduciary of the plan. ERISA lets a named fiduciary designate other fiduciaries to oversee specific plan functions. When it does, the named fiduciary may be partially relieved of liability for the acts or omissions of those designated fiduciaries — as long as it carries out its own duty to monitor service providers.
Important: A plan sponsor can never fully relieve itself of fiduciary liability.
Your company needs to appoint an individual to serve as the trustee, with oversight of the trust account Gusto Retirement sets up for your plan. The trustee manages and controls plan assets through three essential responsibilities:
Invest, control, and manage plan assets
Pay benefits to participants and beneficiaries
Maintain trust account records and furnish an annual report
The trustee role is typically filled by someone with sufficient seniority and tenure, like a CEO, CFO, founder, or partner. If an appointed trustee is no longer affiliated with the plan sponsor, the company should appoint a successor promptly.
By appointing an investment manager, an employer can rely on the manager's investment expertise to maintain the plan's investments. This partially relieves the trustee of liability for the manager's acts or omissions. To be regarded as a 3(38) fiduciary, the investment manager must have authority to manage and control plan assets and must acknowledge its fiduciary status in writing.
Gusto Investment Services, LLC, will serve as the registered investment adviser appointed as the 3(38) investment manager fiduciary, if appointed by you, for your plan.
In this role, Gusto Investment Services oversees plan investments in compliance with the plan's Investment Policy Statement. Because the plan is intended to be ERISA 404(c) compliant, the liability of plan fiduciaries over participants' own investment decisions is limited.
Plan sponsors can also delegate plan administration to a third-party administrator. Gusto Retirement may take on this role for your plan as the plan administrator within the meaning of Section 3(16) of ERISA.
As plan administrator, Gusto Retirement administers the plan in line with the written 401(k) plan document. We approve and administer all benefit payments to participants and beneficiaries, including the timely processing of distributions, loans, and hardship withdrawals, and we provide required participant benefit statements and plan information.
Note: Gusto Retirement does not serve as a fiduciary 3(16) plan administrator for self-service plans.
As a recordkeeper, Gusto Retirement maintains the day-to-day recordkeeping for the 401(k) plan. We make sure records of trust activity are maintained and reconciled against the custodian's records. We also furnish trust statements produced by your plan's custodian, Benefits Trust Company (BTC).
You can find additional details in our Recordkeeping Policies and Procedures.
Understanding these roles matters because Congress and regulatory agencies created numerous remedies, sanctions, and the ability to file a federal lawsuit to provide relief to participants who are harmed by a fiduciary breach or by the misappropriation of plan assets.
Important: Fiduciaries can be personally liable for restoring assets to the plan if those assets are lost or misused, along with other financial penalties. A fiduciary may also be held personally liable for the acts of a co-fiduciary if the fiduciary knowingly aided, abetted, or enabled the breach, or failed to make a reasonable effort to remedy it.
This exposure to personal liability is why ERISA also requires each plan fiduciary who handles plan assets to be covered by a fidelity bond for at least 10% of total plan assets.
No individual or entity — whether or not they are a fiduciary — should be permitted to handle or control plan assets unless they are adequately bonded.
As a plan fiduciary, Gusto Retirement maintains an ERISA bond covering your plan. It provides protection in the event of a claim of lost plan assets due to fraudulent or dishonest acts by Gusto Retirement. Gusto Retirement's bond does not cover acts by any non-Gusto Retirement employee.
Note: Since ERISA generally requires that every fiduciary of an employee benefit plan, and every person who handles a plan's funds or other property, be bonded, you can consult your legal counsel to determine the ERISA bonding requirements for your organization. Beyond the ERISA-required fidelity bond, some companies choose to get additional bonding for plan fiduciaries employed by the company for added protection.
If Gusto Retirement serves as a fiduciary to your 401(k) plan and carries out key functions, your company still holds an important duty as plan sponsor to monitor Gusto Retirement as a service provider. We support that oversight by giving you visibility into plan-related activity in your sponsor dashboard, which includes up-to-date information about participant enrollment and investments, participant and employer contribution activity, service fee invoices, and distributions.
As part of your fiduciary responsibility, you also need to confirm that Gusto Retirement can get timely, accurate, and complete information about your company and employees. You also need to keep bank account information up to date and adequately funded so we can facilitate the timely transfer of all participant contributions (and loan repayments, if any) to the trust.
Maintaining the highest standards of accountability, transparency, and responsibility is fundamental to Gusto Retirement's mission, and we built our platform to meet them. Unlike many other providers, Gusto Retirement is a full-stack 401(k) provider responsible for carrying out most of the critical functions of your plan.
We work to simplify the setup and operation of 401(k) plans and reduce the administrative burden of managing 401(k) benefits. Even so, as a co-fiduciary, you should confirm that you understand the roles and responsibilities of all fiduciaries to your Gusto 401(k) plan, so you can do your part to make sure plan assets are adequately safeguarded.