The 401(k) Minefield: Why Your Business Needs a Real Shield
- Constantine J Kitrinos, CPFA
- Jul 16
- 9 min read
Local business owners have been reaching out to me about the inevitable drift toward the headaches of running a company. They aren't just worried about supply chains to get product in or top-line revenue; they are stressed and have severe anxiety about compliance, keeping their best employees happy, and the regulatory confinements that make it feel like they're navigating through a minefield in the Strait of Hormuz. No, I'm not talking about business owners who ship oil or products; it only feels that way for a lot of small to mid-sized companies when it comes to retirement plans. It overwhelms too many business owners, so they usually give up, walk away, and avoid making any decision. It's true. So many of them decide against investing in the future of their best employees and themselves because of all the problems that could ensue. Yes, it's really that scary and annoying to them, and I can't say that I blame them. It's not really their fault, but it doesn't have to be that way.
Let's face it: as a business owner, your plate is full. I know. I'm speaking from experience. There's a reason most mid-sized companies have designated HR and Benefits departments. It's a massive undertaking to say the least. The last thing you need is a target on your back from the Department of Labor (DOL). Good intent is NOT enough to get a pass. Violate a compliance item, failure to meet notice deadlines or disclosures, and wham. Yet, thanks to some recent shifts in Washington, I view the target on the back of the employer or business owner as getting a lot bigger.
The DOL's New Trap: Alternatives in the 401(k)
Recently, the U.S. Department of Labor proposed a 401(k) investment selection rule that sets out a framework for judging an investment’s prudence. It's always nice to have the rules of the game before you start playing. My eight, ehem, actually nine-year-old now, loves to be vague about rules, then change and adapt them as gameplay happens. Of course, those rules always benefit him - lol! On the surface, the talking heads pitched this as a "win" for free markets, clearing a path for alternative investments—like private equity, private credit, hedge funds, and even crypto—to enter everyday 401(k) menus. Rules are nice because they offer clarity and keep things bound by guidelines.
While I support free markets, I am firmly in the camp that a standard 401(k) plan is absolutely no place for highly complex alternative investments without massive, and I mean massive, ironclad consumer safeguards. Imagine creating strict rules for a new game that intends to keep your kids safe, only to learn that the game involves loaded guns. Sure, you can create rules so they know all the precautions and steps involved in using the weapons safely, but do they actually work in real life, and would you agree to allow your kids to play the game? A little dramatic, well, kinda, but that's just the way I perceive some of these investments when it comes to the average employee. They can get hurt despite following the rules because they lack a true understanding of the ramifications. Many of them think their employer or the platform provider would never let me hurt themselves too badly.
Here is the kicker: Alternative investments can be wildly expensive, illiquid, incredibly hard to value, and practically impossible for the average rank-and-file participant to understand. Even the average advisor you find up and down Monroe Avenue here in Brighton might claim to understand them. Dabbling here and there can get them into trouble pretty quickly because it can be hard to keep up on fees, performance, and holdings. And the new rule? It essentially waves them through. Sure, bring on the weapons of mass destruction, but slap a few warning labels on them and include an instruction manual. What could go wrong?!
Wall Street trade groups defend this as "asset neutrality." I see it differently. I see it as a massive liability trap for you, the business owner. As the plan sponsor, you have a fiduciary duty to protect your employees from extraordinary losses. It sounds insane that Joe the plumber could be liable for doing what he thought was the right thing. Yes, setting up a retirement plan and matching your employees' contributions is an amazing start and a path towards good leadership. But if that plan has a menu that could allow participants to get themselves into trouble, Joe could be facing fines, penalties, and other sanctions. If you follow the advice of a conflicted, product-pushing broker who builds a paper-thin prudence case for a high-fee hedge fund, guess who is held personally liable when the bottom falls out? Joe is. Not the guy in the $5,000 suit who sold it to you. But the financial industry is heavily regulated. How could that happen to Joe or any other business owner? It can, and it does if you're not careful. You're starting to see why tons of business owners have thrown their hands in the air and walked away altogether.
The Ultimate Wealth Hack: The 3(38) Investment Manager
The stakes are simply too high to leave your company's retirement plan to chance, or worse, to an advisor who puts their profit ahead of your participants' outcomes. The retirement space is not very crowded, and there aren't many advisors who want to take them on because of a lack of understanding, complexity, time commitment, and they just aren't as profitable as working with a single client with a fraction of the assets. That doesn't mean that there shouldn't be help available, but it does limit the advisors who are deemed qualified to set up, implement, and maintain a retirement plan. The silver lining is finding the right advisory team that is versed in retirement plan offerings. The good news is you can legally offload this massive headache by hiring an independent 3(38) Investment Manager. I also want to point out that it's not typically your payroll provider or benefits wholesaler who is the best choice. The best candidate will offer all types of retirement plan offerings, not just the standard or most common. Limiting your options will not work in your favor. In many cases, I've stepped in to help a business owner only to find out they have a 401(k) plan with monthly charges that exceed the contributions. Seems like someone made a nice commission or met some type of sales goal. Aggregious, but it can happen to anyone.
Under ERISA section 3(38), a true 3(38) manager is a named fiduciary that takes full discretionary authority over your plan’s investments. They don't just "advise"—they accept the legal responsibility for those decisions. Finally, a sigh of relief after all the scary talk about responsibility and liability.
For a business owner, this delegation offers incredible relief and a little breathing room. The 3(38) chooses, monitors, and replaces the fund lineup, while your duty is narrowed down to simply monitoring the manager. Now that sounds much better and more reasonable for any business owner looking to offer a plan. For a transparent fee, you get professional, unbiased investment selection and a massive reduction in your personal liability. Sounds like a win-win for everyone. Your employees get a prudent, low-cost lineup chosen by a fiduciary whose only job is protecting their retirement—not hitting a corporate sales quota.
Spotting the Frauds: The Fiduciary Checklist
Because of the lack of guardrails in the new DOL rule, some conflicted advisors are going to or could be incentivised to push high-fee alternatives hard. I hope I'm wrong, but there's no telling what they might do if they're technically following the set of guidelines and remaining in technical compliance. They will stick out like a sore thumb if you know what to look for. Before you sign any service agreement, run them through this common-sense checklist:
True Independence: Confirm in writing that they accept zero revenue sharing, zero 12b-1 fees, and are not affiliated with your recordkeeper or fund company. A manager paid the same regardless of what they pick has no reason to pick the wrong thing.
The Written Acknowledgment: If they market "3(38) services" but refuse to put the explicit ERISA section 3(38) liability acknowledgment in the contract, run, don't walk, immediately. You are not getting the protection you need and deserve.
A Demanding Standard for Alternatives: Ask them directly if they plan to add private equity or crypto to your plan. If they show enthusiasm for illiquid, expensive products without a crystal-clear, participant-first rationale, climb through an escape hatch, jump over the gate, or hop over the walls holding you. You need to see yourself out of that situation, fast.
Full Fee Transparency: You should be able to see every single dollar collected by the manager and the underlying funds. Reasonable, disclosed fees are a fiduciary requirement, not a courtesy.
The Gold Standard: Mark R. Ziemba II, AIF
At Monarch Wealth Management, we don’t just preach this stuff; we built our entire firm around it. When our business owner clients asked us to help them navigate this warped world of retirement plans, we didn't outsource it to some faceless institution in Manhattan. We brought the heavy artillery in-house. It's the only way we saw this working out to deliver the outcome clients desire. The control, passion, and understanding of how to do it the right way is how we succeed and excel in this space.
I want to introduce you to our in-house 3(38) fiduciary: Mark R. Ziemba II, AIF for those who don't know him already. Mark isn't just another guy with a calculator; he is a highly credentialed Accredited Investment Fiduciary (AIF). More so, he brings a phenomenal background of deep institutional experience, meticulous compliance tracking, and a ruthless dedication to driving down internal plan costs. He knows his stuff, and we're proud of the work he does. Mark utilizes his experience and credentials to create massive value-add to work in employer-sponsored retirement plans.
Mark operates with a documented, repeatable process designed to do two things flawlessly: generate excellent outcomes for your employees and keep you, the business owner, out of the courtroom. It's the level of service most expect and many wish they had. He refuses to play the Wall Street game of proprietary funds. Instead, he constructs evidence-based, low-cost lineups that prioritize long-term growth over speculative fads. Those types of investments are left for those who have the knowledge and appetite to handle in their own accounts, away from one of the largest driving forces as they work towards retirement. Having a knowledgeable, local, and incredibly capable 3(38) like Mark on your side is the ultimate shield against the modern retirement plan landscape and a huge win for me, my clients, and the firm.
The Final Score
The 401(k) exists to help hard-working people grow their savings by owning productive assets at a reasonable cost. It's not the 1980's anymore, and more than likely your company doesn't offer a pension to take care of you later on. Business owners and employees need to take on an active role in saving towards their retirement to afford a meaningful and sound retirement. A participant approaching retirement does not get a "do-over" if their account is decimated by a mispriced, illiquid alternative investment. And you also don't get a do-over if the DOL audits your fiduciary process, so get it done right the first time.
With fewer regulatory guardrails protecting you from bad products, your choice of investment manager is the guardrail. My issue is not with the products themselves; it's more about the field of play than anything. The stakes are simply too high to get it wrong.
You built the business. You carry the stress. Let us protect the wealth and keep the less obvious predators away.
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