I recently wrote an article regarding which 401(k) plan provisions are bad ideas. The provisions I listed were listed because I thought that they were plan features that could easily cause administrative errors that could threaten the tax qualification of the Plan and its trust. Now, I will take the positive side and mention plan provisions that 401(k) plans should have.
When it comes to 401(k) plans, so much is said about plan expenses, review of funds, investment policy statements, and fiduciary liability. What is forgotten about 401(k) plans is that in addition to being a retirement plan, it is also an employee benefit. So a 401(k) plan with features that encourage participation and accessibility to save for retirement is an employee benefit that could attract potential employees and retain current employees. The features that I think should be added to 401(k) plans if they currently aren’t current provisions would cost plan sponsors very little in administration fees and nothing in added contributions. Therefore, there will be no discussions of certain plan design features that increase employer contributions to plan participants like safe harbor or cross-tested/new comparability form of a profit sharing contribution. The only costs would be to amend the plan document. This article includes my suggestions on how a 401(k) plan can be optimized.