A 401(k) plan is often the first formal benefit a growing company adopts, and it brings more legal obligations than most founders expect. The plan must satisfy the qualification rules of Internal Revenue Code Section 401(a) every year, and the people who choose its investments and service providers are ERISA fiduciaries with personal liability. We help companies set up plans that fit their workforce, keep them compliant as the company grows, and correct the errors that almost every plan eventually makes, from late deposits to missed eligibility. When a plan draws a fee claim or an agency inquiry, we defend it.
Choosing A Plan Design
Design decisions drive cost and compliance. A traditional 401(k) must pass the ADP and ACP nondiscrimination tests each year, and a plan whose deferrals are concentrated among highly compensated employees may fail them and have to refund contributions. A safe harbor design, using a 3 percent nonelective contribution or a matching formula that meets statutory minimums, avoids those tests and usually the top-heavy rules as well, in exchange for required employer contributions that generally vest immediately. Profit sharing, new comparability allocations, and cash balance plans can add room for owners and senior staff. We compare the options against your census data and budget, and we explain what each choice commits the company to in future years.
SECURE 2.0 And Ongoing Compliance
Recent legislation changed the rules for most plans. SECURE 2.0 requires most 401(k) and 403(b) plans established after December 29, 2022 to enroll eligible employees automatically, with exceptions for new and small businesses. It shortened the service required for long-term part-time employees, made catch-up contributions for higher earners Roth-only, and expanded self-correction. Most plans must adopt conforming amendments by December 31, 2026. Ongoing compliance also means applying the plan's definition of compensation correctly, enrolling employees on time, depositing deferrals promptly, monitoring the controlled group, and keeping the plan document current. We review plan operations against the document and the Code and flag where they diverge.
Fiduciary Duties And Fee Risk
ERISA Section 404 requires plan fiduciaries to act prudently, solely in participants' interest, and in line with the plan documents, and Section 406 bars a list of prohibited transactions with parties in interest. Fee litigation has moved well beyond the largest plans. Plaintiffs challenge recordkeeping fees, share classes, target-date funds, and the use of forfeitures. The Supreme Court has held that fiduciaries have a continuing duty to monitor investments, in Tibble v. Edison International, and cannot excuse imprudent options by pointing to a broad menu, in Hughes v. Northwestern University. The best defense is a documented process, and we set up committee charters, investment reviews, fee benchmarking, and minutes that show how decisions were made.
Defending Plans In Disputes
When a plan faces a claim, the response depends on its source. Fee and investment class actions under Section 502(a)(2) often turn on a motion to dismiss, where the strength of the fiduciary record and the plaintiff's comparisons matter. Individual benefit claims start with the plan's claims procedure and the administrative record. DOL investigations usually begin with a document request covering plan documents, committee minutes, service agreements, and deposit timing. We represent sponsors and committees in each setting, coordinate with fiduciary liability insurers, and pursue claims against service providers when a recordkeeper or adviser caused the loss. We also handle disputes over distributions, beneficiary designations, and qualified domestic relations orders.
Fixing Errors Before They Grow
Almost every plan eventually has an operational failure: a missed deferral, an incorrect definition of compensation, a late deposit, or a hardship distribution without the right documentation. The IRS Employee Plans Compliance Resolution System, set out in Revenue Procedure 2021-30 and later updates, lets sponsors fix many errors through self-correction and others through a Voluntary Correction Program filing, at far lower cost than an audit closing agreement. Late deposits of employee deferrals can be corrected under the DOL's Voluntary Fiduciary Correction Program. The common mistake is waiting. Errors compound with each payroll, and an error the sponsor finds first is far cheaper to fix than one an auditor finds.
