A Safe Harbor for Small Business Owners

A client mentioned he wanted us to review the 401(k) plan for his company. The plan had been established by a broker several years beforehand and had never been addressed since. The company owners were very busy running their successful small business and appreciated the fact that there was little maintenance required on their part, but were unhappy that the broker who sold the plan had not been in touch with them and the plan had recently lost nearly fifty percent of the plan’s value.

The result...We looked through their plan documents, contracts, holdings, and fees and expenses and immediately realized that their plan offered little in the way of diversified investment choices and most of the mutual funds didn’t meet the Global Fiduciary Standards. We also prepared a fee analysis and discovered that they were paying high fees directly from their investments, reducing their overall investment returns by more than 2% due to internal fund expenses.

Upon reviewing their annual tax return filings for the plan we determined that although their plan documents stated that they intended to be Safe Harbor 404(c) compliant, their tax return did not indicate that in the appropriate section. We took the appropriate actions to get their plan on track according to fiduciary standards, reduced maintenance time and expenses and put them in a place to begin recovering their losses.