Let’s clear something up right away: just because your 401(k) plan isn’t in the Fortune 500 doesn’t mean you get the Fortune Free Pass. ERISA doesn’t have a small-plan exemption for being “nice” or “under the radar.” Whether your plan has $3 million or $300 million, the fiduciary duties are exactly the same.
But you’d be surprised how many small business owners — and even some providers — act like the rules don’t fully apply until the DOL shows up with a clipboard. That’s what I call the $3 Million Myth: the mistaken belief that “we’re too small to get sued or audited.” Spoiler alert — the IRS and DOL audit small plans all the time, and class-action attorneys are working their way down the asset scale faster than a recordkeeper chasing rollover fees.
The “We’re Small, So We’re Fine” Trap
I’ve seen it all. A three-person law firm sponsoring a 401(k) plan where the partner’s nephew picks the funds. A 40-employee construction company that hasn’t benchmarked fees since the Obama administration. A mom-and-pop retailer using a “free” bundled plan that charges participants like they’re financing a private jet.
The problem isn’t that these people are bad — it’s that they think small plans fly below the radar. They don’t. DOL and IRS targeting models specifically love small plans because they’re more likely to make procedural mistakes — late deposits, missing fidelity bonds, unapproved loans, and my favorite: “minutes of the investment committee” that don’t exist because the committee doesn’t either.
Fiduciary Duty Has No Size Chart
The fiduciary duty to act prudently, diversify investments, and ensure reasonable fees isn’t scaled by plan assets. The same standard applies whether you’re Boeing or Bob’s Auto Body.
That means:
· Benchmarking fees still matters, even if your plan has ten participants.
· Documenting decisions isn’t optional, even if “the committee” is just you and your accountant.
· Depositing deferrals timely means timely — not when your bookkeeper remembers.
· Reviewing investments is still required, even if all you own are target-date funds.
Small plans often think, “We don’t need that level of governance.” Wrong. You need it more, because you have fewer layers of protection if something goes sideways.
How Providers Can Help
If you’re a small-plan provider — TPA, advisor, or recordkeeper — your real value isn’t in your technology stack or your PowerPoint pitch deck. It’s in your ability to make a small business feel like a large plan.
That means offering fiduciary education, doing periodic fee reviews, setting up investment committee meetings (even if it’s one guy and a pizza), and documenting decisions. It’s about turning “accidental fiduciaries” into intentional ones.
When small plans adopt the discipline of large ones, they don’t just reduce risk — they gain confidence. And confidence is contagious.
The Ary Rosenbaum Takeaway
The $3 Million Myth dies the moment you realize ERISA doesn’t care about your size — it cares about your process. There’s no “mom-and-pop clause” in the law. The good news is, being prudent isn’t expensive — being negligent is.
So if you’re a small plan sponsor, act like a big one. Benchmark. Document. Review. Repeat. And if you’re a provider, teach your clients that “small” doesn’t mean “simple.”
Because in the world of 401(k)s, the smallest plans often make the biggest mistakes — and fixing them costs a lot more than acting like a grown-up fiduciary from the start.
