The Department of Labor requires you to benchmark your 401K at least once every three years, but it’s actually recommended that you benchmark your 401K more frequently. Benchmarking is important because you’ll need to evaluate your current 401K plan against other options to ensure that you’re adhering to best practices. In order to avoid fiduciary liability, most experts suggest it’s important to benchmark your 401K every 1-2 years.
Why is benchmarking so important?
Benchmarking protects you and your employees and is required by law by the department of labor at a minimum of once every three years. Benchmarking practices are in place to ensure that the retirement plan that you offer your employees has appropriate investment options and fees that are not unreasonable. By benchmarking, you’ll be comparing your 401K against other plans to ensure that you’re within your legal bounds and providing your employees with the right options.
Why benchmark more frequently than the required minimum?
Because your business is not stagnant and changes over time, it can be important to benchmark every 1-2 years to make sure your plan remains appropriate. Standards for how a 401K should look change based on things like the size of your business. As your business grows, it’s important that your retirement plan keeps up.
Your benchmark report is an important tool for protecting your business. Adhering to best practices by benchmarking every year to two years will ensure that you’re not caught unprepared, and this will safeguard you as your business changes and grows. Benchmarking at this slightly increased frequency will also ensure that you’re never on the wrong foot with the Department of Labor, and it’s incredibly helpful to have a clear assessment of how your 401K is evaluated when compared to other similar plans.
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