Download - MAKING A GOOD 401(k) PLAN EVEN BETTER
MAKING A GOOD 401(k) PLAN EVEN BETTER
TOPICS COVERED
Increasing Participation
Understanding Your Plan
Roth 401(k)
Safe Harbor
Investment Policy Statement
Managing Fiduciary Responsibility
INCREASING PARTICIPATION
Annual Employee Education Meetings (or more frequent) Mandatory attendance for new hires
Periodic distribution of literature to promote plan and relevant retirement planning or investment topics
Decrease eligibility waiting period to join plan • Can keep the waiting period for employer contributions longer -
known as “Dual Eligibility”
Offer more frequent entry dates
INCREASING PARTICIPATION
Incorporate a match formula that requires / entices employees to defer to receive an employer contribution
Design a match formula that requires greater deferrals to maximize match
• Instead of matching 100% of 3% = a maximum match of 3% ...• Offer a match of 50% of 6% = a maximum match of 3%
INCREASING PARTICIPATION
Auto Enrollment
If no affirmative deferral election is made by employee (including 0%), they are automatically enrolled in the plan for a set deferral % (typically 3 – 6%)
Have option to also auto-increase beginning deferral % each year by 1% up to a maximum of 10%
Employee has 90 days to reverse initial deferrals out of plan without penalty
Stopping or modifying future deferrals determined by provisions of the plan
UNDERSTANDING YOUR PLAN
Need to understand and evaluate provisions
Eligibility Waiting Period
Is there also a minimum # of hours required or simply length of service?
Dual Eligibility
Entry Date
Exclusions by classification
Plan’s Definition of Compensation
Deferrals
Changes to deferrals
UNDERSTANDING YOUR PLAN
Need to understand and evaluate provisions (continued)
Match
Annual Employer Contributions
Vesting
Withdrawals
Using and Allocating Forfeitures
Updating participant records
ROTH 401(k) A new, optional, account source within an existing 401(k) retirement
plan
Combines some features of Traditional 401(k) and Roth IRA
Gives the OPTION to set aside money for retirement on an after-tax basis
Earnings grow on a tax-deferred basis and qualified withdrawals made tax free (at age 59 ½ and held the account for 5 years)
NO INCOME LIMITS – all participants are eligible
Can also allow pre-tax sources to be ‘converted’ to Roth 401(k) source
SAFE HARBOR PLAN DESIGN Allows employers to avoid Compliance Testing on 401(k) deferrals
Highly Compensated Employees can defer up to plan or IRS maximum each year
Requires an employer contribution to plan (limits and restrictions apply) Certain Match or Profit Sharing formulas qualify
Generally requires accelerated vesting (immediate or 2 year)
Can be made in addition to other “non-safe harbor” plan contributions
INVESTMENT POLICY STATEMENT Intended to assist Plan Fiduciaries to make investment related
decisions in a prudent manner
Outlines underlying philosophies and process for selection, monitoring and evaluation of investments offered to participants
Should be reviewed and applied at least annually
Third party administrator or plan provider does not necessarily provide or maintain this even if they have provided investment menu
If investments challenged by participants, a sound Investment Policy Statement and process can provide protection
THE ROLE OF A PLAN FIDUCIARY
Many activities associated with plan operations make the person performing them a fiduciary
Fiduciary status based on functions, not job title
Act on behalf of participants, subject to standards of conduct, and liability
Act solely in interest of participants Carry out duties prudently Follow plan documents Diversify investments Pay reasonable plan expenses
MANAGING FIDUCIARY RESPONSIBILITY
Maintain an updated, IRS approved document
Be aware of responsibilities as Fiduciary
Fiduciaries and Plan Committee meet at least annually
Maintain due diligence file
Investment employees’ deferrals in a timely manner
Review investments at least annually including performance and fees (document this review)
Offer employee education at least annually
SUMMARY
A few simple improvements and changes can allow for significant benefits
Periodically monitor and review what is currently offered
Document reviews
Be aware of and consider new alternatives and improvements