There is an old saying that the customer is always right.
When it comes to a retirement plan, the owner isn’t always right.
I’ve dealt with enough plan sponsors over the years to know that business owners are used to getting their way. It’s their company. They built it, they own it, and they’re usually the person making the final decision.
A 401(k) plan doesn’t work that way.
You can’t simply decide that you want to give yourself a contribution and not give one to employees if the plan document and applicable rules don’t permit it. You can’t let a favored employee into the plan early because they’re doing a great job. You can’t approve a distribution because somebody really needs the money if the plan doesn’t permit the distribution.
You also can’t ignore the plan document because doing something differently seems easier.
The rules don’t care that you own the company.
This is where good plan providers earn their money.
Sometimes the most valuable thing a TPA, advisor, recordkeeper, or ERISA attorney can tell a plan sponsor is “no.”
Nobody likes hearing it. I’ve certainly had clients who didn’t appreciate the answer. But I’d rather have an unhappy client for five minutes than a client with a compliance problem that takes months and thousands of dollars to correct.
The worst providers are sometimes the ones who always say yes. They want to keep the client happy, avoid an uncomfortable conversation, or simply don’t want to challenge the owner.
That’s not service.
Good providers explain why something can’t be done and, when possible, offer a compliant alternative that accomplishes what the sponsor is trying to achieve.
Owning the company gives you plenty of authority.
It doesn’t give you the authority to ignore ERISA, the Internal Revenue Code, or your own plan document.
Sometimes the owner simply isn’t right.