Sponsor a 401(k) and ERISA makes you a fiduciary: run the plan solely for participants (exclusive benefit), act with a prudent expert's process, diversify, follow the plan document, and pay only reasonable expenses. Operationally: deposit deferrals promptly, carry the required fidelity bond, deliver notices, file the 5500 series, and monitor anyone you delegate to. Liability is personal but process-based — a documented, calendared process is most of the defense.
What ERISA is, and when you're inside it
ERISA — the Employee Retirement Income Security Act of 1974 — is the federal law governing private-employer retirement plans. Sponsor a 401(k), and you're inside it; the law sets minimum standards for how the plan is run, documented and protected, and it makes specific people — fiduciaries — personally accountable for running it in employees' interests. (State-run CalSavers, notably, is built to sit outside ERISA — one of the genuine differences covered in CalSavers vs a 401(k).)
The reassuring part first: hundreds of thousands of small businesses run ERISA plans successfully, almost none of their owners are lawyers, and the duties reduce to a shortlist of learnable habits. The sobering part: fiduciary liability under ERISA is personal — § 409 makes a breaching fiduciary personally liable to restore plan losses. The point of this guide is to make the shortlist explicit.
Who the fiduciaries are
Every plan must have a named fiduciary — identified in the plan document as the one with authority to control and manage the plan's operation. In a small business that's typically the company itself or the owner. But ERISA's definition is functional: anyone who exercises discretion over plan management or assets, or gives paid investment advice, is a fiduciary by what they do, title or no title. The office manager who chooses when deposits go in is acting in a fiduciary process. Hiring professionals — a 3(38) investment manager, a 3(16) administrator, a pooled plan provider — reallocates specific duties, and always leaves you one: choosing and monitoring those professionals prudently.
The core duties, in plain English
| Duty | What it means in practice |
|---|---|
| Exclusive benefit / loyalty | The plan is run solely in participants' interest. Plan assets never bridge company cash flow — using them that way is the cardinal violation. |
| Prudence | The "prudent expert" standard: act as a knowledgeable person would. Practically — follow a process, compare alternatives, and document the reasons. Prudence is judged by process, not by outcomes. |
| Diversification | Plan investments must be diversified to minimise the risk of large losses — in a participant-directed 401(k), largely about offering a sound menu. |
| Follow the plan document | The document is the law of your plan. Operating on memory instead — the wrong match formula, the wrong compensation definition — is a breach even with good intentions. |
| Pay only reasonable expenses | Fees paid from plan assets must be reasonable for services received — the duty behind reviewing the fee disclosures and re-shopping periodically. |
The operational obligations
- Timely deposits. Employee deferrals must reach the plan as soon as they can reasonably be segregated — the subject of the payroll integration guide.
- The fidelity bond exists — and is not optional. ERISA § 412 requires anyone who handles plan funds to be covered by a fidelity bond protecting the plan against fraud or dishonesty. The required amount is set by formula relative to plan assets, within statutory minimums and caps: at least 10% of the funds handled, never less than $1,000 and never more than $500,000 — $1,000,000 for a plan that holds employer securities. A bond is inexpensive and routinely available; not having one is a red flag the Form 5500 itself asks about. (Note: a fidelity bond protects the plan; it is not fiduciary liability insurance, which protects you and is a separate, optional purchase.)
- Disclosures and filings. A Summary Plan Description to participants, annual fee and (where applicable) safe harbor notices, and the Form 5500 series each year — small plans file the short form; solo plans the 5500-EZ above $250,000. TPAs and recordkeepers prepare these; the sponsor signs and is responsible.
- Co-fiduciary awareness. A fiduciary can be liable for another's breach when they knowingly participate in it or fail to make reasonable efforts to remedy one they know about (§ 405). Practically: if you see a problem, act — silence is participation.
The compliance habits that cover most of it
- Keep a file. The plan document and amendments, the SPD, fee disclosures, provider agreements, meeting notes. Prudence is a process standard; the file is the evidence of process.
- Calendar the recurring items. Deposit checks each payroll, annual notices, the 5500, the bond renewal. Boring and sufficient.
- Review fees on a cycle. Read the 408(b)(2) disclosures, benchmark every few years, note what you concluded — the cost guide shows how.
- Delegate deliberately. Decide which hats you want professionals wearing — 3(21) vs 3(38) for investments, 3(16) or a PEP for administration — get the fiduciary status in writing, and monitor them annually.
- Fix problems through the front door. The IRS (EPCRS/SCP) and DOL (VFCP) maintain correction programs because errors are normal. Found-and-fixed is a footnote; found-and-hidden is a case.
None of this requires an owner to become an expert — it requires knowing the shortlist and staffing it. That division of labor is exactly what our plan fiduciary service and business plans practice exist to provide.
Common questions
Am I personally liable if the plan's investments lose money?
Not for market losses. ERISA judges fiduciaries on process, not returns — a prudently selected, monitored, diversified menu that falls in a bad market is not a breach. Liability attaches to process failures: no monitoring, unreasonable fees nobody reviewed, deposits that sat in the company account, operating contrary to the document.
Does the ERISA bond cover me if I make a mistake?
No — the fidelity bond protects the plan against fraud and dishonesty by people who handle its funds. Honest mistakes and fiduciary breaches are the province of fiduciary liability insurance, an optional separate policy. Small-plan sponsors frequently discover this distinction only when trying to claim; better to learn it here.
Is CalSavers subject to ERISA?
No — CalSavers is structured as a state-facilitated IRA program designed to keep employers outside ERISA fiduciary status, and courts upheld that design. That's simultaneously its appeal (near-zero employer duties) and its ceiling (no employer contributions, IRA-level limits). The trade-offs are laid out in CalSavers vs a 401(k).
We've never had a plan document review or fee benchmark. How exposed are we?
Unknowable from here — but both are fixable in weeks, and doing them creates precisely the process record ERISA rewards. Start with the document (is the plan operating as written?) and the 408(b)(2) disclosures (what is everyone paid?). Most cleanups we see end as small corrections, not disasters.
Sources
- ERISA §§ 402, 404, 405, 409 and 412, 29 U.S.C. §§ 1102, 1104, 1105, 1109, 1112
- U.S. Department of Labor, Meeting Your Fiduciary Responsibilities, dol.gov/agencies/ebsa
- U.S. Department of Labor, Protect Your Employee Benefit Plan With an ERISA Fidelity Bond, dol.gov
- IRS, Employee Plans Compliance Resolution System (EPCRS), irs.gov; DOL VFCP, dol.gov
Want the shortlist running without you?
We'll walk your plan against this exact list — document, deposits, bond, fees, filings — and hand you what needs fixing, plainly.