Stephen Bobko Hillenaar, Taylor Easley and Dale Suezaki are financial advisers at Morgan Stanley, 329-7979. Once a retirement savings plan has been approved and is in place, it’s tempting to sit back and adopt an “I’m done, hands off” attitude.
Once a retirement savings plan has been approved and is in place, it’s tempting to sit back and adopt an “I’m done, hands off” attitude. However, to ensure that a plan will continue to operate effectively, employers should periodically review plan provisions and features. Here are some points to check.
c 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 help benefit 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.
c 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 ERISA 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.
c Administration. Participants and beneficiaries must be given a copy of the Summary Plan Description, or SPD, within 120 days after a plan is adopted or within 90 days after becoming eligible to participate in the plan or receive benefits. Review the SPD to make sure it accurately describes the provisions of your plan. If changes have been made to the plan document — which is likely, given the recent tax law changes — 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.
c Plan rollovers. Qualified plans must allow participants and surviving spouses to elect direct rollover of any eligible distribution to an IRA or another employer sponsored retirement plan.
c 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 percent of the funds handled by the bonded individual, but cannot be for less than $1,000 and need not be for more than $1 million.
c 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. Maximum loan amounts can not exceed the lesser of $50,000 or one-half of a participant’s vested account balance. 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.
c 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.
This article is published for general informational purposes only and is not an offer or solicitation to sell or buy any securities or commodities. Any particular investment should be analyzed based on its terms and risks as they relate to your individual circumstances and objectives.
Stephen Bobko Hillenaar, Taylor Easley and Dale Suezaki are financial advisers at Morgan Stanley, 329-7979.
