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401k Plan Sponsor Questions Most Forget to Ask
by Christopher Carosa, April 15, 2025
401k plan sponsor questions often go unasked despite sponsors shouldering enormous fiduciary responsibilities. Addressing these questions proactively can significantly impact participants’ financial security and protect sponsors from unintended fiduciary risks.
Critical 401k Plan Sponsor Questions About Target Date Funds (TDFs)
One critical yet frequently overlooked question involves Target Date Funds (TDFs). These popular default options can carry hidden complexities.
Ron Surz, president of Target Date Solutions in San Clemente, California, highlights this essential query: “What is a prudent TDF? Which TDFs are prudent?” Surz answers, “Broadly diversified and protects near the target date against Sequence of Return Risk. Why? There is only one demographic that all defaulted participants have in common—they are financially unsophisticated. We owe them the Duty of Care that is like our duty to protect our young children from foreseeable harms.”
Fiduciaries must assess their TDF selection carefully, ensuring prudence and participant protection—an exercise more involved than simply opting for a popular name.
Why Should Plan Sponsors Bear Fiduciary Responsibilities Alone?
Another of these important 401k plan sponsor questions directly addresses fiduciary and administrative burdens.
Jeff Coons, chief risk officer at High Probability Advisors in Pittsford, New York, frames the issue clearly: “Why are we held responsible as administrative fiduciary and investment fiduciary to our plan and not our providers? Our Answer: Providers are available who can serve as 402(a) Named Fiduciary (reducing your fiduciary responsibility for plan oversight), 3(16) Administrator (reducing your administrative responsibilities), and 3(38) Manager (taking on discretionary investment responsibility as a fiduciary). This can be done either by hiring these providers directly or by joining a pooled employer plan.”
Delegating fiduciary responsibilities could substantially mitigate risk and simplify plan management—yet many sponsors overlook this opportunity. Learn more about fiduciary duties.
Are Employees Understanding and Engaging with Their 401k Plan?
Effective communication and understanding of 401k plans among participants is another critical yet underappreciated area.
“One question plan sponsors should ask is, ‘Do our employees understand the plan well enough to use it effectively?’” says Richard Bavetz, investment advisor at Carington Financial in Westlake Village, California. “Many don’t, and that gap can lead to under-saving or poor investment choices. Sponsors can help by offering regular, accessible education tailored to different learning styles and stages of life.”
Effective education isn’t just about information dissemination—it’s about ensuring participant understanding and engagement.
Are Fiduciary Decisions Thoroughly Documented?
Documentation of fiduciary decisions forms the bedrock of fiduciary defense but is frequently overlooked by plan sponsors.
Bavetz emphasizes this oversight: “Another overlooked question is, ‘Are we documenting our decision-making process thoroughly?’ Good intentions aren’t enough—if something goes wrong, the documentation is the defense. Keeping clear records of meetings, advice received, and actions taken is a key part of fiduciary duty.”
Proper documentation serves as an invaluable protective measure, yet too few sponsors maintain rigorous records.
Does the Plan Design Align with Your Current Workforce?
Moreover, the evolving nature of businesses calls for periodic alignment checks of the 401k plan design itself—a critical step often bypassed by busy sponsors.
“Lastly, the rarely asked, ‘Does our plan design align with our workforce?’” Bavetz continues. “As companies evolve, the original 401k setup may not reflect current employee needs. Reviewing plan features like eligibility, vesting, or loan provisions can make the plan more effective and appreciated by participants.”
Plan design must reflect current employee demographics and financial realities, adapting over time rather than remaining static.
Are Advanced Technologies and Data Analytics Utilized?
Advanced technology, notably AI and data analytics, is another under-utilized area that could dramatically enhance plan effectiveness.
“Are we using data analytics to improve plan design?” asks Adit Sheth, senior software engineer at Microsoft in Redmond, Washington. “Advanced analytics can identify participation gaps, generational differences, and default settings that may be hurting outcomes.”
Personalized communication driven by AI could dramatically boost engagement. Explore how analytics improve retirement readiness.
Are Plan Fees Competitive and Transparent?
Fee benchmarking, a core fiduciary responsibility, frequently falls by the wayside yet remains essential.
Kent Fitzpatrick, managing director at Asset Strategy in Natick, Massachusetts, highlights this issue: “Are my plan fees competitive with similar plans in the marketplace? Many sponsors overlook fee benchmarking, which is critical for fiduciary compliance and participant outcomes.”
Is AI Being Prudently Managed in Your Plan Administration?
Finally, emerging fiduciary risks associated with AI require proactive scrutiny.
Michelle Capezza, of counsel at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in New York, stresses AI oversight importance: “Plan sponsors should ask their plan service providers regarding their use of AI tools in delivering plan services… It will become increasingly important to evaluate how they might use such tools and to determine prudent ways of monitoring any adverse impact on plan participants that might result from their use.”
As technology evolves, fiduciaries must maintain vigilance, applying traditional prudence principles to modern risks.
Act on These Essential 401k Plan Sponsor Questions
These overlooked questions aren’t merely administrative boxes to check—they form the critical foundation of fiduciary responsibility. By proactively addressing these critical 401k plan sponsor questions, sponsors can enhance their plans, protect participants, and shield themselves from unnecessary fiduciary exposure.
These overlooked questions aren’t merely administrative boxes to check—they form the critical foundation of fiduciary responsibility. By proactively addressing them, 401k plan sponsors can enhance their plans, protect participants, and shield themselves from unnecessary fiduciary exposure.