Critical Compliance Aspects of a Safe Harbor 401(k) Plan

Administering a solo 401(k) plan is a simple process. It is designed to cover only the owner (and possibly a spouse), which means there are minimal integration tasks. The owner can easily manage their own investments, making the process even simpler.

But once you add employees, the game changes. Eligible employees are required to have 401(k) deferrals deducted from their payroll and to manage their own investments, adding complexity to the process.

In this article, we will discuss compliance aspects of safe harbor 401(k) plans and point out some critical details.

ERISA Fidelity Bond

Qualified plans are required to protect participant’s benefits from fraud or dishonesty, basically all the risks of loss that could arise.

The bond is determined using the amount of the plan’s assets at the beginning of each year. The bond value should be at least 10 percent of the amount of funds being handled. The bond amount may not be less than $1,000, even if 10 percent of the amount of funds being handled would permit a smaller dollar amount. The maximum bonding amount is $500,000. Bonds may be purchased with plan assets because the bond protects the plan.

Additional coverage for Fiduciary Liability Insurance may be added to protect the fiduciaries themselves against losses due to breaches of fiduciary responsibility. Please note that this is not required and does not satisfy the bonding requirement.

Who provides an ERISA Fidelity Bond?

We typically recommend Colonial Bonds & Insurance to our clients. Here is a link to their website, where you can find more information on purchasing bonds and coverage options.   

The attached flyer has a link to start your account, which will then be linked to Emparion as your TPA.  

Below is a summary of the information used to generate the quoted premiums. Please note that add-ons like Fiduciary Liability Insurance and Cyber Liability Insurance are not required by the IRS or the Department of Labor. The add-on would provide additional protection for the plan sponsor.  

Plan Type: 401(k) / Profit Sharing   
Effective for 2024   
Annual Reporting Type: Single-employer Plan
Estimate of Qualifying Assets:    $100,000
Bond Amount:  $10,000  

Stand-alone ERISA bonds required by the IRS and Dept of Labor.

Here is a link to the US Department of Treasury’s list of certified companies that provide bonds: Surety Bonds – List of Certified Companies (treasury.gov)

Pension Benefit Guaranty Corporation (PBGC)

The Pension Benefit Guaranty Corporation (PBGC) protects the retirement benefits of American workers in that are participants of private sector defined benefit pension plans. A Cash Balance plan is a type of defined benefit plan, and also qualifies for PBGC coverage in some cases. We have an article that you can find here to read if your business would be excluded from PBGC coverage. 

The PBGC was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of private sector defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum.  If a single-employer plan fails and PBGC becomes responsible for it, the agency directly pays benefits due to current and future retirees up to legal limits.

Use EMPARION PLANS on

*Emparion is not affiliated with, endorsed by, or sponsored by these institutions.*

Important Things to Note: 

Annual PBGC Filings and Premiums

• Each year, your company must file a report with the PBGC to provide mostly basic details such as company details, plan details, participant count, actuary certification of premium calculation.
• Additionally, the premium payment must be submitted each year. In 2024, the flat-rat premium is $101 per participant. 
• Emparion will assist annually with preparing and filing the annual PGBC Premium Report. We will inform you of the premium amount that is due and remind you of any upcoming deadlines. The payment is due each year by October 15th.   

PBGC Account Set Up

• We will register with your plan with the PBGC, and you will receive communication from them prompt you to sign up and create your own account. If you need any assistance, please let us know. 
• This is a government agency, but they may reach out regarding your account. Emparion will be an authorized party to discuss your plan details or any communication coming from the PBGC. 
• When registering with the PBGC we will provide certain details, can you confirm if any of the following details are incorrect, or if there is a preferred contact option you would like us to use instead: 

Administration/ Filing Roles 

• We wanted to provide some clarification on the terms that you may see on the PBGC website: 

Employers/Plan Sponsor – this is typically in reference to your company, or you, the business owner.

Practitioners – This is in reference to third party administrators, actuaries like Emparion, that may be responsible for a portion of the administration for a pension plan.  

Workers & Retirees – Any information addressed to a worker or retiree, would be referencing the individuals who work for you. The likely will not need to access or go to the PBGC directly unless the PBGC begins to provide pension benefits to them.

If you would like to find out more information here is a link to the PBGC website.