Let\u2019s clear something up right away: just because your 401(k) plan isn\u2019t in the Fortune 500 doesn\u2019t mean you get the Fortune Free Pass. ERISA doesn\u2019t have a small-plan exemption for being \u201cnice\u201d or \u201cunder the radar.\u201d Whether your plan has $3 million or $300 million, the fiduciary duties are exactly the same.<\/p>\n
But you\u2019d be surprised how many small business owners \u2014 and even some providers \u2014 act like the rules don\u2019t fully apply until the DOL shows up with a clipboard. That\u2019s what I call the $3 Million Myth: the mistaken belief that \u201cwe\u2019re too small to get sued or audited.\u201d Spoiler alert \u2014 the IRS and DOL audit small plans all the time, and class-action attorneys are working their way down the asset scale faster than a recordkeeper chasing rollover fees.<\/p>\n
The \u201cWe\u2019re Small, So We\u2019re Fine\u201d Trap<\/p>\n
I\u2019ve seen it all. A three-person law firm sponsoring a 401(k) plan where the partner\u2019s nephew picks the funds. A 40-employee construction company that hasn\u2019t benchmarked fees since the Obama administration. A mom-and-pop retailer using a \u201cfree\u201d bundled plan that charges participants like they\u2019re financing a private jet.<\/p>\n
The problem isn\u2019t that these people are bad \u2014 it\u2019s that they think small plans fly below the radar. They don\u2019t. DOL and IRS targeting models specifically love small plans because they\u2019re more likely to make procedural mistakes \u2014 late deposits, missing fidelity bonds, unapproved loans, and my favorite: \u201cminutes of the investment committee\u201d that don\u2019t exist because the committee doesn\u2019t either.<\/p>\n
Fiduciary Duty Has No Size Chart<\/p>\n
The fiduciary duty to act prudently, diversify investments, and ensure reasonable fees isn\u2019t scaled by plan assets. The same standard applies whether you\u2019re Boeing or Bob\u2019s Auto Body.<\/p>\n
That means:<\/p>\n
\u00b7 Benchmarking fees still matters, even if your plan has ten participants.<\/p>\n
\u00b7 Documenting decisions isn\u2019t optional, even if \u201cthe committee\u201d is just you and your accountant.<\/p>\n
\u00b7 Depositing deferrals timely means timely \u2014 not when your bookkeeper remembers.<\/p>\n
\u00b7 Reviewing investments is still required, even if all you own are target-date funds.<\/p>\n
Small plans often think, \u201cWe don\u2019t need that level of governance.\u201d Wrong. You need it more, because you have fewer layers of protection if something goes sideways.<\/p>\n
How Providers Can Help<\/p>\n
If you\u2019re a small-plan provider \u2014 TPA, advisor, or recordkeeper \u2014 your real value isn\u2019t in your technology stack or your PowerPoint pitch deck. It\u2019s in your ability to make a small business feel like a large plan.<\/p>\n
That means offering fiduciary education, doing periodic fee reviews, setting up investment committee meetings (even if it\u2019s one guy and a pizza), and documenting decisions. It\u2019s about turning \u201caccidental fiduciaries\u201d into intentional ones.<\/p>\n
When small plans adopt the discipline of large ones, they don\u2019t just reduce risk \u2014 they gain confidence. And confidence is contagious.<\/p>\n
The Ary Rosenbaum Takeaway<\/p>\n
The $3 Million Myth dies the moment you realize ERISA doesn\u2019t care about your size \u2014 it cares about your process. There\u2019s no \u201cmom-and-pop clause\u201d in the law. The good news is, being prudent isn\u2019t expensive \u2014 being negligent is.<\/p>\n
So if you\u2019re a small plan sponsor, act like a big one. Benchmark. Document. Review. Repeat. And if you\u2019re a provider, teach your clients that \u201csmall\u201d doesn\u2019t mean \u201csimple.\u201d<\/p>\n
Because in the world of 401(k)s, the smallest plans often make the biggest mistakes \u2014 and fixing them costs a lot more than acting like a grown-up fiduciary from the start.<\/p>\n
<\/span><\/p>","protected":false},"excerpt":{"rendered":" Let\u2019s clear something up right away: just because your 401(k) plan isn\u2019t in the Fortune 500 doesn\u2019t mean you get the Fortune Free Pass. ERISA doesn\u2019t have a small-plan exemption for being \u201cnice\u201d or \u201cunder the radar.\u201d Whether your plan … Continue reading