As the end of the year approaches, it’s a great time for retirement plan sponsors to take a hard look at what they offer.
Ary Rosenbaum, an attorney with The Rosenbaum Law Firm P.C. in Garden City, N.Y., says that means reviewing plan expenses, gathering data for compliance reviews, reviewing plan providers and making sure plan insurance and employer contributions are where they need to be.
This is the time to make changes to your current plan. He recommends these six steps.
1. Offer a special deferral election of bonuses: Rosenbaum said that any business that has given out end-of-the-year bonuses in the past — or would like to in the future — should look at their 401(k) plan to see if it allows for a special bonus deferral election. That would allow plan participants to defer up to 100 percent of their bonus without impacting their current deferral election and they wouldn’t have to wait until a change was allowed under the terms of their plan, he said.
2. Get ready for compliance: After the first of the year, third-party administrators begin asking retirement plans for their census information so they can conduct their discrimination testing. Plan sponsors will be asked for the name, date of birth, date of hire, date of termination, hours of service and compensation of employees. The TPA will also ask the plan sponsor about the owners and about who else might be invested in the company. It’s a lot of information to compile so it doesn’t hurt to get a jump on it, he said.
3. Review ERISA bond and fiduciary liability insurance: ERISA-covered retirement plans must have an ERISA bond in place to protect assets from theft. If you don’t have one yet, Rosenbaum recommends you call your property and casualty broker to set one up. Fiduciary liability insurance isn’t mandatory, but it offers plan fiduciaries protection from litigation. If companies don’t have this type of insurance, trustees of the retirement plan could be personally liable for any problems.
4. Review employer contributions: Plan sponsors have until Dec. 31 to change their retirement plan formula for making employer contributions. If a company has done well financially, they may want to consider starting or increasing their contribution to the employee retirement plan. If they are struggling financially, they should consult with an ERISA attorney or their third-party administrator to reduce the amount.
5. Review plan expenses: Year-end is a great time to review plan expenses. As the plan fiduciary, plan sponsors have an obligation to pay reasonable plan expenses. Plan providers are required to provide plan sponsors with an accounting of the fees they charge the retirement account. It is the plan sponsor’s job to review any fee disclosures and benchmark them against what other providers are charging, he said.
6. Review plan providers: Plan sponsors have a fiduciary responsibility to know what their plan providers are doing. Plan providers need to be assessed for competence. If a retirement plan is being charged high fees by a provider, it is a good idea to know what services are being provided to earn those fees.