Maximizing Retirement Plan Effectiveness – Ten Things for Fiduciaries to Consider
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MAINTAINING A THRIVING retirement plan means more to plan sponsors than simply fulfilling their fiduciary obligations. It’s about maximizing their retirement plans to benefit participants and to further the plan sponsor company’s prosperity by attracting and keeping quality employees.

As a financial advisor, you have the opportunity to show your value to your clients by helping them look at and consider various options for enhancing the effectiveness of their plans.  Consider some of the possibilities.

Take advantage of recent tax law changes.

• Automatic enrollment – Under the Pension Protection Act of 2006 (PPA), the government has provided significant benefits to adding an automatic enrollment feature to a plan, including ERISA preemption of state payroll deduction laws, default investment protection from fiduciary liability, an extended timeframe for making corrective distributions, and more flexibility in returning deferrals to participants who choose not to participate.
• Safe harbor automatic enrollment feature – Effective in 2008, this design excuses a retirement plan from the ADP and/or ACP testing requirements while reducing matching contribution costs and providing greater flexibility in the vesting formula compared to the current safe harbor provisions.
• Rollovers to Roth IRA – Starting in 2008, participants may roll distributions over to a Roth IRA upon meeting the Roth IRA conversion requirements.  For Roth IRA rollovers in 2010, the compensation limit to meet the Roth IRA conversion requirements are lifted and participants may spread the tax hit between 2011 and 2012 if so desired.
• Non-spouse beneficiaries – Under the PPA, a plan may now allow a non-spouse beneficiary to rollover qualified plan death benefits to an inherited IRA and receive benefits over his or her life expectancy, thereby extending the timeframe for receiving and being taxed on distributions.

Review your current plan provisions.

• Dual eligibility – To provide employees the ability to begin making immediate deferrals to their retirement plans while controlling company match and/or profit-sharing costs, plan sponsors should consider offering immediate participation for deferral purposes, while maintaining more strict eligibility requirements for company match and/or profit sharing contributions.
• Profit-sharing contribution possibilities – MassMutual can create plan design options that will enable the plan to target certain employee groups, in order to maximize benefits to key performers.
• Vesting – If a plan currently calculates vesting by counting hours, plan sponsors should consider converting to an elapsed time method, which would eliminate the need to count hours, thereby simplifying plan administration.
• Compensation simplification – Plan sponsors can simplify plan administration by using a uniform, IRS-approved definition of compensation for all purposes, including contribution allocations. In addition, to reduced employer contribution costs, plan sponsors should consider compensation from the date of participation for allocation purposes.
• Hardship distributions – Under expanded hardship distribution rules, participants may take hardship distributions for burial or funeral expenses and casualty losses. In addition, participants may now request hardship distributions on behalf of beneficiaries even if they are not dependents.
• Distribution options (for profit-sharing and 401(k) plans only) – If a plan provides for payment of benefits in numerous forms other than a single-sum payment, the IRS allows for the elimination of cumbersome distribution options. Elimination of such optional forms of benefit will ease plan administration.

These are but a few of the design options that may be beneficial for your clients’ plans and participants. For more information regarding plan design possibilities and how best to discuss them with your clients, please contact your MassMutual representative or call 1-866-444-2601. You can also visit us at www.massmutual.com/powertogrow. For more information regarding general retirement plan compliance issues, check out the IRS’ new on-line compliance tool at http://www.irs.gov/pub/irs-tege/pub4531.pdf.

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