A checklist for retirement plan sponsors

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. 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.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) of the federal ERISA law. 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.Participants and beneficiaries must be given a copy of the summary plan description 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 description to make sure it accurately describes the provisions of your plan. If changes have been made to the plan document — which is likely, given 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 summary plan description 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 with the IRS, then the summary annual report must be distributed within two months after the end of the extension.Qualified plans also must allow participants and surviving spouses to elect direct rollover of any eligible distribution to an IRA or another employer-sponsored retirement plan.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.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 cannot exceed the lesser of $50,000 or 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.All forms should meet current requirements. Forms that may need updating include beneficiary designation forms, benefit election forms, and the notice of distribution options.
Don Sommese, a certified financial planner who works in the Manchester office of Morgan Stanley Smith Barney, can be reached at 603-629-0200.