Understanding and communicating plan fees is just one way to be a prudent fiduciary. Another way you can assure your plan participants of good financial management is to put your plan out to bid every two to three years. While this will require extra effort from the plan sponsor, the benefits can be worth the process to ensure reasonable fees and justify services. Some companies hire a third party consultant to handle the process, taking the burden off of the plan sponsor. However, the plan sponsor is ultimately responsible and will still need to prepare search information. Here are six steps to initiating a search:

Read the rest of this entry »

A new calendar year opens up great possibilities. Coming off the holidays, watching It’s a Wonderful Life, gives me a renewed commitment to being thankful. The plan sponsors and companies that I work with have many challenges, and I see that the ones who are able to focus on the positives are the most productive. Employee Benefit News’ Benefits Forum & Expo in Dallas last September featured a keynote speaker that connected the verified link between positive attitude and work success. Shawn Achor, founder of Good Think Inc., talked about Harvard-based research that proves the “brain’s ability to construct a picture of reality in which success and happiness are possible.” He leads workshops to help companies capitalize on “The Happiness Advantage™.” Employee Benefit News summarized his talk about five ways to improve your happiness quotient in an online news article. In case you didn’t see it, ‘now’ is always a good time for inspiration. Happy New Year!

This year, when you make New Year’s resolutions, be sure to have one about checking on the fees you pay to administer your plan. Even a company like Walmart, with its extensive legal resources, recently agreed to pay $13.5 million dollars along with Merrill Lynch for a class action settlement. Without admitting any fiduciary wrongdoing, they agreed to eliminate funds from their plans that carried high fees. A few reminders:

1. Know what fees you pay and be prepared to justify them to your plan participants as well as the DOL.
2. Be sure that record-keeping fees are documented separately from investment management fees.
3. Diversify your plan portfolio, offering choices to plan participants.
4. Communicate all changes to your plan participants and employees – clearly and promptly to avoid any misunderstandings.

Your plan auditor is a good source of information about ways to keep your plan in top fiduciary shape. Another good resource is the AICPA’s Accounting and Auditing Resource Centers.

Once you make an amendment to your plan, how and when you communicate with plan participants is an important ERISA requirement. A case this fall, Helton v. ATT, Inc. (Sept. 16, 2011), points to four important lessons in communication:

1. Answer plan participant questions in a timely and concrete manner

Your communication with plan participants is best put in writing whenever possible. Documenting answers to questions that come from plan participants about their
specific situation keeps everyone on the same page.

2. Prepare and distribute a Summary of Material Modifications (SMM) or Summary Plan Description (SPD)

You technically have 210 days after the plan year in which the changes are adopted to communicate changes. However, you’re better off preparing and distributing
materials as soon as possible to make sure that those affected by the changes can act accordingly. And, the task is complete – it won’t be overlooked with the passing of time.

3. Keep records of how and to whom SMM or SPD notices were sent.

If it’s possible for plan participants to somehow miss a piece of communication about plan changes, you need documentation to prove that the proper notice was sent in the time required by ERISA. Documentation may be as simple as a mailing list of recipients.

4. Remember that all plan participants and surviving beneficiaries need a notice, not just current employees.

This communication tip may seem obvious, but unfortunately, it’s not always followed.

See if any of the following action items apply to your retirement plan and take action prior to December 31, 2011:

1. Make discretionary amendments for plan design changes

Whether a defined benefit (DB) or defined contribution (DC) plan, any plan design changes that you want to be effective for the 2012 plan year need to be adopted by the
end of 2011. Examples of amendments include changes to automatic enrollment or matching amounts.

2. Complete in-plan Roth conversions

Earlier this year, I wrote about in-plan conversions to Roth accounts, part 1 & part 2. If you have an employee who wants to split the conversion amount between 2011
and 2012, be sure that proper documentation is executed prior to December 31, 2011.

3. Amend DC plan documentation if you suspended 2009 required minimum distributions

The Worker, Retiree and Employer Recovery Act (WRERA) of 2008 allowed DC plans to treat 2009 required minimum distributions (RMDs) as eligible rollover distributions. Make sure that your plan document is amended to reflect the 2009 RMD rollovers if you took advantage of this provision. (You were able to defer documentation until now.)

Many workers are staying in jobs past traditional retirement age, and the rules regarding distributions at age 70 ½ can be complicated. Plan participants can make contributions and take required minimum distributions at the same time. As an employer, you’re required to continue making contributions for an employee as long as they are employed and participate in your plan. Here are IRS guidelines that you need to know and follow:

When to distribute:

-         Required minimum distributions (RMDs) are required at age 70 ½ or the year in which the participant retires (if after age 70 ½).

-         In the case of a SIMPLE IRA, SEP or if the participant is at least a 5% owner, RMDs must occur at age 70 ½, regardless of retirement status.

How to calculate required minimum distributions:

-         Generally, the value of the retirement plan or IRA on December 31 of the prior year is divided by the life expectancy of the plan participant.

-         Life expectancy is determined by one of three tables in Publication 590 (Appendix C), based on marital status and age difference of spouse.

When to schedule payment:

-         Participant must take the first RMD by April 1 of the year following age 70 ½ or retirement.

-         In the following years, the participant must take the RMD by December 31, including the year that the distribution was taken by April 1.

Additionally, you must also give your employee the option to continue deferring salary after age 70 ½, if permitted by your plan.

To my clients and readers — I hope that you enjoy a wonderful holiday.

The IRS announced cost of living adjustments for contributions to various types of retirement plans in the 2012 tax year. You can use the information in an IRS easy-to-understand chart to communicate contribution limits to your employees.

In an effort to save money, some companies are terminating their retirement plan options. However, as long as funds are still present in a plan, companies with more than 100 eligible participants remain required to have an annual audit even if the plan is terminated.

The key word is ‘eligible.’ If a plan is active, participants are considered eligible if they have an opportunity to participate, even if they do not elect to do so. If you terminate your plan due to reduction in force, you need to know how many participants (present and former employees and beneficiaries of deceased former employees receiving benefits) you have to determine if you still need an audit. A reduction in force that creates a 20% or greater drop in participants is called a ‘partial termination.’

One important consideration about full or partial termination of a plan is that the matching contributions and other employer contributions must be fully vested for all participants when a plan is terminated. This rule applies regardless of the vesting schedule. A participant’s elective deferrals in a 401(k) plan are always fully vested, but the employer portion is based on the plan document provisions.

Here are the criteria for a fully terminated plan:

-         An established date of termination

-         A description of the benefits and liabilities of the plan as of the termination date

-         Distribution of plan assets as soon as administratively feasible, typically within one year after the termination date

If a plan is a qualified plan, then participants will have tax-favored status for the distribution amount. Otherwise, participants are liable for taxes, or can designate a rollover account to defer taxes on the distribution amount.

Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012, the Social Security Administration announced today.

The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011.

Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.

Information about Medicare changes for 2012, when announced, will be available at www.Medicare.gov.  For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.

The Social Security FACT SHEET shows the effect of the various automatic adjustments.