Broker Check

Is it time for a 401(k) review?

September 13, 2022
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As one year ends and another begins, you naturally think about the state of your business – what is working well, and what could improve in the future. I know that it is early to be thinking about the beginning of a new year, but we are nearing the time when adjustments can be made to employee benefits packages. Naturally the 401k is part of that review. 

When was the last time you thought about the state of your company’s 401(k) plan?

Make no mistake, 401(k) plans need yearly reviews. A good 401(k) plan review evaluates four factors to gauge a plan’s effectiveness.

Investments. How are the investments performing? Should the line-up be altered? Might some employees ask you to find investments with lower fees? Might others want a wider range of investment choices?

Compliance. Enrollment, employer matches, distributions, loans – are they all proceeding according to the rules for 401(k) plans? If the plan is non-compliant in any of these areas, your company could be at risk for financial penalties and lawsuits, and the plan could lose its tax-favored status.1

It’s good to remind employees that distributions from 401(k) plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Once you reach age 72, you may be asked to take required minimum distributions.

Participation. How many of your workers use the plan? If your answer is “not nearly enough,” there are ways to encourage greater participation. You need broad plan participation from lower-earning employees to meet non-discrimination tests.2

Deferrals. What is the average deferral rate among plan participants? Is it higher for the highest-earning employees? While this tendency is common, you want all plan participants to contribute to their accounts at a decent level.

The best way you can make sure your plan is compliant and up-to-date is to get a regular 401(k) review. Please call or email me to schedule a time to review your plan.

1. CPAJournal.com, February 12, 2019
2. Forbes, March 14, 2019

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.