Dentists already wear many hats, including those of clinician, business owner, team leader, and mentor. However, taking on the role of a trustee for an employer-sponsored retirement plan requires a different level of commitment, attention, and expertise.

Serving as a trustee is a role that goes far beyond managing patient care and running a successful business. It comes with critical fiduciary responsibilities that directly impact employees’ financial futures. Many fail to recognize the full extent of this role, responsibilities, and the crucial impact it has on plan compliance and risk management.

Throughout my career, I observed firsthand how practice owners struggle to grasp the full extent of their fiduciary obligations. Determined to fill this gap in my own understanding, I sought mentorship from a retirement plan attorney as well as financial advisor. This journey of learning has unveiled the true complexity and immense importance of the trustee’s role. It extends far beyond the simple “TTEE” designation that appears after their name on retirement plan documents.

There is no getting around it: retirement plans are subject to a complex web of laws and regulations. To stay in compliance, employers must balance their goal of providing meaningful retirement savings options with the responsibilities of sponsoring and managing a 401(k). It is helpful to first understand the key players involved in the process.

Every 401(k) plan requires a plan sponsor, a plan administrator, a named fiduciary, and a trustee. The plan sponsor, by default, can also serve as the 3(16) Plan Administrator, named fiduciary, and trustee. This overlap can make it challenging to navigate the distinct roles and responsibilities of these key players. Understanding how these responsibilities intersect and differ is crucial for ensuring compliance and effective plan management​.

In this article, we will focus on the trustee’s role in administering a 401(k) plan, as it is one of the key fiduciary positions required by law. Trustees are responsible for overseeing the plan’s investments and ensuring that the plan complies with all relevant laws and regulations, including those set forth by the Employee Retirement Income Security Act (ERISA).

While other players like the plan sponsor, plan administrator, and named fiduciary also play critical roles, the trustee’s duty is unique in that it directly involves managing the plan’s assets and acting in the best interest of the participants.

Trustees must ensure that the plan operates within legal frameworks, provide oversight for the investment options available to plan participants, and maintain compliance with regulatory requirements.

Navigating Fiduciary Duties with Expertise

As previously mentioned, acting as a trustee places practice owners in a position of fiduciary responsibility, meaning they are legally obligated to act in the best interests of plan participants and beneficiaries. This includes prudently managing plan assets, selecting, and monitoring investment options, and ensuring that all associated fees and expenses are reasonable. Without a deep and thorough understanding of the plan, trustees risk falling short of these obligations, potentially exposing themselves to serious legal liabilities and penalties. 1

My mentorship experience highlighted how being a trustee is not about setting up a plan and leaving it on autopilot. It requires active engagement with a complex regulatory environment, including laws such as the Employee Retirement Income Security Act (ERISA), Internal Revenue Code (IRC), and Department of Labor (DOL) guidelines. These regulations exist to protect participants and ensure plans operate transparently and efficiently. Non-compliance can have severe repercussions, from costly fines and penalties to plan disqualification, jeopardizing the retirement security of employees. 2

Investment Oversight and Strategic Plan Design

A significant responsibility of trustees is overseeing the plan’s investment options. This means selecting, monitoring, and evaluating investments to ensure they align with the plan’s goals and meet participants’ needs. Trustees must understand the plan’s investment strategy, recognize the risks associated with each option, and make decisions that maximize returns while minimizing risks. By doing so, they safeguard participants’ savings and help build a financially sound plan.

Trustees must also have a keen awareness of plan design to align with both employer and employee needs. This includes navigating contribution limits, eligibility criteria, vesting schedules, and benefit formulas. Those who are well-versed in these aspects can make strategic decisions that enhance the plan’s appeal, improve employees’ retirement readiness, and help attract and retain top talent within the practice.

Cost Management and Risk Mitigation

Managing administrative costs is another essential trustee function. This includes understanding fees related to investment management, recordkeeping, legal services, and more. With a clear understanding of plan costs, trustees can evaluate and negotiate terms with service providers, ensuring expenses remain fair and necessary. Such vigilance protects participants’ retirement savings from excessive fees.

Additionally, retirement plans face various risks, such as investment volatility, operational missteps, and regulatory breaches. Trustees must proactively identify and mitigate these risks by maintaining effective controls, conducting regular audits, and enforcing compliance checks. My mentorship journey made clear that risk management is not a static activity but an ongoing commitment to protect both plan assets and participant interests.

Empowering Participants Through Communication

A well-informed trustee recognizes the importance of clear communication with plan participants. Trustees have a duty to educate employees on their plan benefits, investment options, and overall retirement strategy. This involves providing accurate information, promoting financial literacy, and offering guidance on saving for the future. By building trust and knowledge, trustees help empower employees to make sound financial decisions. 3

Staying Prepared and Ensuring Long-Term Viability

Retirement plans are subject to audits and reviews by the IRS and DOL. Trustees who fully understand their plan’s operations are better prepared to navigate these processes, ensure proper documentation, and promptly address issues. This not only demonstrates compliance but also reflects a commitment to fiduciary excellence.

Beyond compliance, trustees must keep an eye on long-term sustainability. Adjustments to plan design, investment options, or administrative procedures may be necessary to keep pace with regulatory changes, economic trends, or workforce demographics. Adapting strategically ensures the plan’s ongoing viability and its capacity to serve future participants. 4

Navigating ERISA and IRS Testing Requirements

A trustee’s role in overseeing a retirement plan requires a strong understanding of various compliance tests to ensure adherence to IRS regulations and ERISA guidelines. One key responsibility is ensuring that the plan meets the requirements for nondiscrimination testing, such as the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests. These tests ensure that contributions to the plan do not disproportionately favor highly compensated employees (HCEs) over non-highly compensated employees (non-HCEs). 5

The ADP and ACP tests calculate the average deferral and contribution percentages for these two groups to ensure the plan remains compliant with IRS rules. For instance, to pass the ADP test, the contributions of HCEs must not exceed a certain multiple of the non-HCEs’ average contributions. If a plan fails these tests, trustees must work with the plan sponsor to correct the issue, typically by refunding excess contributions or making additional contributions to non-HCEs.

Understanding these requirements and staying on top of plan compliance is essential for fiduciary responsibility. Trustees should be prepared to actively engage in plan design, monitor contributions, and work with service providers to ensure that the plan meets both employee needs and legal standards.

Mitigating Legal Exposure

Trustees who fail to understand their plans or act imprudently face legal risks, including lawsuits and regulatory actions. As a fiduciary, you can be personally liable for the decisions you make regarding the retirement plan. The Department of Labor (DOL) or IRS will not likely come after your personal assets unless you have done something illegal, but a former employee or group of employees may file a lawsuit or lodge a complaint with the DOL. Additionally, the DOL’s Employee Benefits Security Administration is increasing retirement audits, with goals of auditing every single U.S. retirement plan every two years. Unfortunately, the auditors often find errors, forcing the fiduciary to pay fines as well face the aggravation and cost of correcting any issues as identified in the audit. 6

However, proactive and informed trustees can minimize these risks, safeguarding themselves and their practice from potential litigation and reputational damage.

The Path to Responsible Trusteeship

Serving as a trustee of a retirement plan is far more than just ticking off a regulatory requirement—it is an immensely important responsibility with the potential to significantly impact the financial futures of employees. My mentorship with a retirement plan attorney and financial advisor deepened my understanding of the nuances involved in managing a retirement plan effectively. From selecting investments to ensuring proper documentation, there is a tremendous amount of detail that must be understood and carefully managed to fulfill fiduciary duties.

For dental practice owners and other business leaders, being an engaged trustee is not just about adhering to the law—it is an opportunity to demonstrate leadership and show genuine care for your team. It is about creating a culture where employees feel secure in their financial future, knowing that their retirement plan is being managed responsibly and with their best interests in mind.

By embracing this responsibility and staying informed about the changing landscape of retirement plan regulations and compliance standards, trustees can set the stage for both the success of the business and the well-being of its employees. Taking on this responsibility is more than fulfilling a duty—it is a powerful way to lead by example and ensure a lasting, positive impact on the people who help drive the business forward.

References:

1. https://www.irs.gov/retirement-plans/retirement-plan-fiduciary-responsibilities
2. https://www.morganlewis.com/-/media/files/publication/outside-publication/article/2022/department-of-labor-as-erisas-cops-dol-erisa-enforcement-overview-and-current-priorities-practical-guidance.pdf
3. https://www.financestrategists.com/retirement-planning/plan-compliance/plan-sponsor-education/
4. https://www.mondaq.com/unitedstates/employee-benefits–compensation/339628/top-irs-and-dol-audit-issues-for-retirement-plans
5. https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-the-plan-failed-the-401k-adp-and-acp-nondiscrimination-tests
6. https://padmin.com/blog/what-business-owners-dont-know-can-hurt-them-know-your-fiduciary-responsibility/