I just joined a practice of 4 physicians with multiple employees. The employees are offered a 401(k) through John Hancock. The partners have individual/solo 401(k)s with differing companies based upon the K-1 distributions. Is this legal?
If partners are offered brokerage windows, but nobody else is not, this is totally illegal. In fact, if partners are offered brokerage windows where they can buy Vanguard funds, but rank and file staff is offered a crappy Hancock 401k with high AUM fees, that's the kind of stuff that gets practices sued for. And yes, this is totally illegal. I bet the partners still pay record-keeping fees, unless those are all pulled out of participant 401k accounts. That's another fiduciary violation, and a benefits rights and features violation.
Here's how we typically address situations like that. First, set up a low cost 401k plan with an ERISA 3(38) fiduciary, a record-keeper and a TPA. No AUM fees, just a low cost investment menu and managed portfolios with an expense ratio of 0.15% (Vanguard/DFA funds). Then, if individual partners want to offer brokerage windows, record-keeper offers Ameritrade ones, so that ANYONE in the practice can open a brokerage window. That's how you address all of the problems above:
1) Fiduciary issues - check (fiduciary breach by partners to allow high cost plan for staff)
2) Benefits rights and features - check (everyone gets the same low cost platform/funds)
3) Lowering plan costs - check (nowadays you can get a low cost plan set up that does not have any AUM fees and where the costs are paid by the practice directly, thereby the practice gets the tax deductions on all of the fees paid directly vs. AUM fees).
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