Time for a 401(k) Plan Spring Cleaning?

15 April 2019 Labor & Employment Law Perspectives Blog
Authors: Casey K. Fleming

Now that spring is in the air, it might be a good time to dust off your 401(k) plan document and do a quick checkup. This post walks through five issues we recommend considering as you jump into your spring cleaning:

  1. Plan Fiduciaries – Are your plan fiduciary designations up to date? Is the correct plan administrator designated? Do you need to update the members on your 401(k) investment or administrative committees – either due to turnover or longevity? It is important that fiduciary designations are up to date because fiduciaries play critical roles relative to your company’s 401(k) plan and are held to a high standard of behavior. You should consider scheduling regular fiduciary training for your plan fiduciaries so that they remain up to date on their responsibilities and expected conduct. It is also worth making sure that your company’s 401(k) plan fiduciaries are properly identified in your fiduciary liability insurance policy.
  2. Plan Investments – When was the last time the internal plan fiduciaries met with the plan’s investment advisor? These meetings should occur whenever deemed prudent, which, for most plan sponsors, is generally 1-4 times per year. Some potential discussion points include whether the plan invests in the correct class of funds (e.g., institutional vs. retail), whether participants are offered enough options to permit them to adequately diversify their investments, whether it remains prudent to include an employer stock fund, whether any revenue-sharing arrangements are in the best interests of participants and are being applied in an appropriate manner, and whether the qualified default investment alternative is up to date and reflects industry best practices. It is important to document the discussions at these meetings to show that plan fiduciaries considered the relevant issues, as process is more important than outcome in the context of fiduciary decision-making.
  3. Review Operational Errors – Now is a good time to keep a list of any operational errors that need to be corrected and reach out to benefits counsel to determine how to approach correction under the Internal Revenue Service’s self-correction program and/or voluntary correction program (VCP). Under these correction programs, plan sponsors have additional – and more plan sponsor-friendly options – when they timely identify and correct these errors. Also note that the VCP fee structure has changed, such that it is now based solely on the net assets in the retirement plan – the fees are $1,500 (net assets $0 to $500,000), $3,000 (net assets $500,000+ to $10,000,000), and $3,500 (net assets $10,000,000+). As a result, it can be beneficial to include multiple errors in the same filing.
  4. Review Procedures and Forms – If the plan’s loan procedures are maintained outside the plan, confirm that they reflect current plan administration and best practices. Does the plan maintain up-to-date QDRO procedures and model QDRO forms? Does the beneficiary designation form reflect best practices and plan provisions?
  5. Review Participant Communications – How long has it been since the Summary Plan Description (SPD) was updated? If there have been any material changes, ERISA requires plan sponsors to update SPDs every five years.   Are other participant notices – e.g., automatic enrollment notices, safe harbor notices, qualified default investment fund notices, participant fee disclosure notices (to the extent applicable) – up to date? Also consider reviewing your delivery approach – if you are delivering materials electronically, have you confirmed that you satisfy the Department of Labor and Internal Revenue Service rules? If you are not delivering materials electronically, consider whether you can and should, as it can save a significant amount of money.

Of course, this is not an exhaustive list and you should always consult your advisors to consider whether it makes sense to consider additional issues with respect to your plan.

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