By Jay Pluimer on June 3, 2016
Most of us understand that if somebody else picks up the check for lunch, there is probably a catch. The old adage about there being no such thing as a “free lunch” is true more often than not. Hopefully, though, the offset isn’t worth more than the cost of the meal.
When it comes to 401(k)s, particularly for small- to mid-size companies with around 100 employees or less and plan assets under $10 million, many employers select the free lunch option when they launch their plan because they want to provide a benefit for their employees but don’t necessarily want to write another check. The “catch” for this free lunch includes all of the risks associated with being a fiduciary.
An employer takes on a fiduciary responsibility as soon as the company commits to providing a 401(k) plan as a retirement savings benefit for their employees. Fiduciary responsibility should be viewed as a risk for the company, and deserves the same level of attention as other risks, such as cyber security, data theft and compliance programs. In fact, shifting from defined benefit (DB) to defined contribution (DC) plans is the equivalent of moving the DB liability off the balance sheet while creating a DC risk liability.