APRIL 2008 Pension Plan tip of the month...

A few tips for every day Retirement Plan Administration     

Qualified retirement plans are regulated by Congress, the Department of Labor (“DOL”), and the Internal Revenue Service (“IRS”).  These federal agencies set standards to improve and monitor company-sponsored plans, which are an essential part of the financial security of U.S. employees.  With the many recent law changes and options available to plan sponsors, retirement plan administration has become complicated. Paragon staff members are your resource for questions concerning the intricacies of your retirement plan. We have put together a few tips to aid in everyday plan administration and operation. Do not hesitate to call us at anytime throughout the year if you have any questions.      

• Always follow the terms of the plan document

The plan document describes your plan’s administrative rules and contains detailed definitions and procedures that govern your plan’s operation.  A few of the basics that you may deal with every day include eligibility requirements, participant entry dates, employer contribution formulas and allocation requirements, and vesting rules.  The Summary Plan Description (“SPD”) is a user friendly guide explaining the plan’s features that serves as a useful reference for plan sponsors and must be distributed to plan participants so they have a clear understanding of the plan’s terms.  As government related changes are implemented, Paragon is here to assist you by preparing the required amendments and updates to the SPD.  If you do find that your plan operation differs from the plan document, contact your account representative to determine an action plan on how to correct the error.   

• Add employees at the correct time

Before providing employees the opportunity to join the plan, please double check the document’s eligibility and entry date provisions to verify that new participants are added timely.  Also keep in mind how often an employee can commence or change deferrals, as this may be different than the actual entry dates.

• Give employees the required information when eligible

The newly eligible employee will need an Enrollment Kit with an enrollment application, a summary of the plan features, a list of investment options, and educational information about the investments.  You can obtain this enrollment information from your Financial Advisor.  Additional employee notices, such as a Safe Harbor Notice or an Auto Enrollment Notice, may be required depending on your plan design.  Please make sure the employee understands when the enrollment form is due so that it can be submitted to both your payroll vendor and the investment company on a timely basis.  Payroll will need to know the deduction amount/percentage and the start date so that they can begin the proper deductions from the employee’s paycheck.  The investment company will need a copy of the enrollment form to establish an account for the employee, unless online enrollment is available.  We strongly recommend that you obtain an enrollment application from every newly eligible participant, even if an employee declines the opportunity to participate, and that you retain the original with your permanent plan records.   

• Deposit employee deferrals timely

The IRS/DOL has strict guidance regarding the timeframe in which elective deferral contributions must be submitted by an employer to a qualified plan. In our recent experience assisting clients through IRS examinations, agents have deemed employee contributions (including loan repayments) not segregated within 3-6 business days after each payroll as late. If your payroll frequency is more often then monthly, it is no longer acceptable, according to these standards, to submit contributions on a monthly basis. Employee contributions not remitted timely require the allocation of lost earnings and excise taxes to be calculated, funded, and reported.

• Limit employee deferral contributions

It is important to impose the annual deferral limit each year when deducting deferral contributions from participant pay checks. The deferral limit for 2008 is $15,500 with a catch up amount of $5,000 for those who have attained age 50 or more during the year.  Additionally, depending on your plan’s deferral patterns, you may need to limit the contributions made by highly compensated employees.     

• Suspension of deferral contributions if a hardship withdrawal is taken

If your plan allows hardship withdrawals, aside from the application review process, one of the steps in the administrative process is to suspend the participant’s 401(k) deferral. Typically this is the last step and is commonly overlooked. The participant’s 401(k) deferral must be suspended for 6 months, unless a longer time frame is specified in your plan’s document.  Please be sure to inform the participant of this suspension period, as well as the date he/she can elect to commence participation once the suspension period has expired.                   

Paragon staff members are here to assist you in the administration of your plan. We look forward to hearing from you.