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A Checklist for Plan Sponsors
ONCE A RETIREMENT savings plan has been approved
and is in place, it’s tempting for your client to sit
back and adopt an “I’m done, hands off” attitude.
However, to help ensure that your client’s plan will
continue to operate effectively, they should
periodically review plan provisions and features. Below
are some points that you may want to remind your client
to check.
How the
Plan Is Presented. The more convinced employees are of
the wisdom of saving for retirement, the greater the
level of employee participation. The greater the
participation, the more the plan can benefit all
employees — including highly compensated employees.
Regular meetings, newsletters, and handouts are
effective means of communicating plan advantages. Check
to make sure printed materials are up to date and easy
to understand, and distribute them frequently.
Plan
Investments. Employers that sponsor participant-directed
plans can limit potential legal liability for losses
caused by employees’ investment decisions if plan
investment choices meet certain requirements under
Section 404(c). Very generally, where 404(c) protection
is sought, a plan should offer at least three “core”
investment choices, allow employees to switch
investments at least once each quarter, and provide
participants with adequate disclosure of specified
investment information.
Administration. Participants and beneficiaries must be
given a copy of the Summary Plan Description (SPD)
within 120 days after a plan is adopted or within 90
days after becoming eligible to participate in the plan
or receive benefits. Your client should review the SPD
to make sure it accurately describes the provisions of
their plan. If changes have been made to the plan
document then all participants must receive a
notification of these changes within 210 days after the
end of the plan year in which the changes were adopted.
Generally, all participants must receive a copy of the
SPD every five years.
Summary
annual reports must be distributed to participants
within nine months after the close of the plan year. If
a plan receives an extension to file its annual report
(Form 5500) with the IRS, then the summary annual report
must be distributed within two months after the end of
the extension.
Plan
Rollovers. Qualified plans must allow a participant to
elect direct rollover of any eligible distribution to an
IRA or another employer-sponsored retirement plan. Your
client’s plan should have procedures in place to handle
direct rollovers.
Bonding.
Generally, plan fiduciaries and others who handle the
assets of a plan must be bonded. The bond must be equal
to at least 10% of the funds handled by the bonded
individual, but cannot be for less than $1,000 and need
not be for more than $500,000.
Loans to
Participants. Loans that are not properly administered
may be treated as constructive distributions resulting
in taxable income to the recipients. Review loans to
make sure that loan balances do not exceed the maximum
limitations. Unless used to finance the purchase of a
principal residence, all loans must be repaid within
five years. A plan may impose more stringent conditions
on loans than the law requires.
Plan Forms.
All forms should meet current requirements. Forms that
may need updating include beneficiary designation forms,
benefit election forms, and the notice of distribution
options.
Remind your
client of the importance of a periodic review of their
plan provisions and features, yet another way to help
ensure that they are maximizing the effectiveness of
their plan.
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