Ask Terry Questions 401k Plan Smells “Fishy”!

401k Plan Smells “Fishy”!

By Terry Savage on December 22, 2019 | Wild Card

My employer offers a 401k plan that is pooled with the entire office. It is managed by his advisors in his name… not ours. A TPA oversees it, he was hired by the consulting firm. We have no choice in how the money is diversified…we are at the mercy of the employer and the consultants. It makes us very uncomfortable and want to know if this is a common practice and a sound choice.

Terry Says

What you wrote is shocking. It doesn’t seem like a qualified 40l(k) plan at all. And if it is presented as such to the employees, and if the employer is deducting money from your paychecks for a “40l(k)” plan, the employer could be facing a very expensive lawsuit for breach of fiduciary duty.
Here is a link to a great article on the responsibilities of 40l(k) plan sponsors.

And here is a summary from the IRS about plan sponsor responsibilities.

You are required to be given the “plan documents” that describe the plan in legal terms. Ask the third party administrator for them! They will clearly set out what type of plan you have. And if you can’t get the documentation, then you can either call the IRS to ask if this is a legit plan. Or contact the Federal Department of Labor, which regulates retirement plans under the ERISA laws.
You may be scared to raise these issues now, but it’s important that you know exactly what’s going on. And you may even qualify for a “whistleblower” award from the IRS — because if the company is not following the rules, they could owe a small fortune in taxes! So please don’t hesitate to start the process. And please do write back and let me know what happened!



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