5 Tips for Operating your 401(k) Plan, 403(b) Plan, or other Qualified Retirement Plan Program
Offering a retirement program in the workplace is a huge benefit to employees, employers, and HR managers.
Got a Plan? Great!
A qualified retirement plan, such as a 401(k) plan, not only creates value but increases the chances of employee engagement and retention. It is a good idea to review the basics from time to time to ensure your plan is operating at peak performance. Below are 10 great tips for Employers, HR Managers, and Plan Administrators that we hope will help you. Connect with us if you’d like to dive into the details on any item, we love this stuff.
1. Know Your Plan’s Eligibility Requirements
When do new hires enter the retirement plan? Is it the first of the month? And if so, would a March 1 hire enter on March 1 or April 1? A 401(k) TPA will know this immediately for your plan and is always your best resource. Eligibility, specifically the entry date, is the point in time when a new employee first becomes a participant – whether or not he or she starts contributing. Eligibility and Entry are part of Plan Design. Eligibility is not necessarily the same as enrollment. While a plan may stipulate that one is eligible after 3 months of employment, do they enter the plan the first of the month follow? Or, the next payroll? Or at certain points in the year, such as the first of the next quarter following satisfaction of the eligibility period. Being cognascente of your retirement plans’ requirements is essential for “operational compliance.” There are usually 4 components – age, length of service, hours worked, and entry dates – that make up eligibility.
2. Always Provide the SPD (Summary Plan Description)
The SPD (Summary Plan Description) is the participant’s version of the retirement plan. This is generally shorter than most other plan documents; but, it is the main resource for new and existing plan participants on the features of the 401(k) plan or 403(b) plan. In most instances, the SPD is presented in a questions and answers format and in plain language. Retirement Plan’s are complex enough for even the experts; the SPD is not. The SPD must be distributed to all eligibile plan participants.
3. Fund Regularly – Always Remit Employee Contributions Timely
Depending upon the size of your retirement plan (number of participants) you may be subject to different requirements. As a general rule, employee contributions (such as Elective Deferrals and Roth Deferrals) must be segregated from corporate assets and deposited as soon as administratively feasible but no later than 7 days from the end of the payroll – for plans not subject to the large plan audits. Establish a recurring schedule that coordinates the funding of employee contributions at the same interval each payroll. As an example, your company can segregate withholding’s by the 5th day after payroll, as evident by prior remittances, however, the last 20 payrolls were remitted 10-15 days later; should the plan come under review or audit you may have a hard time explaining to the IRS or DOL why it took so long. In addition, you will owe interest on those late contributions. Be timely. It’s required.
4. Show Me The Money – Review Distribution Options Your Plan Allows
A retirement plan does not have to allow actively employed plan participants access to their account. Why? It is a retirement plan, not a savings plan; and because the law says so. In the most strictest sense, there are only 4 events that trigger a “distributable event” – death, disability, termination, and retirement. A retirement plan could, however, allow for loans, in-service withdrawals, or hardship; but it is not required to unless designed to offer those options.
5. Seek Out Experts (and people smarter than you)
Whether those experts are financial advisors, TPAs, consultants, attorneys, or any other retirement geek – know your limits and be OK with asking for help. A retirement plan is complex; as such, we wholeheartedly encourage you to seek out experts. No one, and we mean no one, is an expert of all things; that is why it might be best to consider more than one expert at the table – TPA, Advisor, Asset Provider CRM, all with their unique, specific, skills to support you and your retirement plan. The fact that you seek guidance to help your participants enjoy the best retirement plan possible is essential to success. After all, you may have a fiduciary requirement if you’re the plan trustee, owner, or other authorized plan representative acting on behalf of a fiduciary.
A Final Thought on Operational Compliance
This is a biggie. Sometimes, when our team consults with a client, we find a disconnection between what the company is doing and what the plan document says they are to do. Operating the plan in a manner parallel to the plan document is a must. If your concerned about whether or not you’re operating your plan in compliance, or even if you aren’t and would like some help, the good news is that there are programs and support to help bring your plan back into compliance – without the penalties and potential disqualification. Remember, a 401(k), 403(b), profit sharing plan, all are qualified, subject to ERISA, and when they lose that qualified status, well, the whole plan becomes taxable. Not fun. So, let us help you, and your plan, stay compliant.