Pension
Administration and Trust Accounting
- Home
- About PATA
- Reasons to Have a Qualified Plan
- Fiduciary Responsibility
- Types of Plans
- Contribution Deadlines
- Fees / Online Payments
- Documents and Amendments
- Pension Limits
- Plan Distributions
- Pension Loans
- Links
- Newsletter (Provided by IRS)
- Contact PATA
Traditional
401K Plan
Design…
The key
elements in 401(k) design are deciding how the employer's 401(k)
contributions
should be allocated among employees and in determining the employer's
401(k)
matching contributions. A proper employer match can increase employee
participation in the 401(k) plan and may help meet certain 401(k)
nondiscrimination requirements, thus reducing total employer
contributions.
Selection of appropriate eligibility requirements and a vesting
schedule will
also affect employer contributions. Decisions regarding the
availability of
loans, hardship withdrawals and other distribution options and the use
of
pooled or self-directed investments are also important 401(k) design
considerations.
Administration…
Proper 401(k)
administration requires a determination of necessary administrative
services to
keep the 401(k) in compliance. Competent, cost-effective 401(k)
consultants or
service organizations must be selected to provide these services and
their
performance must be monitored. Nondiscrimination testing is one area
that
demands special expertise. Improper 401(k) administration can lead to
governmental penalties or the loss of the 401(k) plan's favorable tax
status.
Recordkeeping…
It is important
that 401(k) monies be properly allocated to participants' accounts.
Failure to
do so can distort participant balances and endanger the tax status of
the
401(k) plan. A more sophisticated recordkeeping is required when
participant-directed accounts are available than when investments are
pooled. A
computer-driven recordkeeping system is essential for larger 401(k)
plans.
Checks on recordkeeping should be performed by the employer or an
advisor.
Investments…
401(k)
investments can be pooled or participant-directed. If
participant-directed
accounts are selected, an employer may reduce fiduciary responsibility
for
investment losses if the requirements of the Department of Labor are
met with
respect to these accounts under Section 404(c) of the Internal Revenue
Code. If
participant-directed accounts are not established and investments are
pooled,
the employer must use extra care in making investments, since 401(k)
earnings
will be reflected in the accounts of the participants. Forming an
investment
committee, appointing an investment manager or adviser and monitoring
investment earnings and other measures may help reduce employer
liability in
this area.
Communication
with Employees…
Though 401(k) employee
communication is important to help meet certain reporting and
disclosure
requirements, convincing employees to participate is integral for the
401(k)
plan's success. If employees are shown how the 401(k) arrangement can
help them
save for retirement and defer taxes, their appreciation of the program
should
lead to greater participation. The employer should provide investment
information and education but not advice, even though the line between
them may
be blurry. Employee communication using printed material, videos,
slides and
the Internet are important, but face-to-face meetings and targeted and
individualized
approaches are often more useful. Investment education meetings and
financial
counseling should be considered. An enrollment meeting is advisable
when the
401(k) is established. The effectiveness of employee 401(k)
communication can
be measured by surveys, employee advisory groups and other methods.
Correcting a
Failed
If you failed
your