As a plan sponsor, many of the important administrative tasks associated with your plan’s operation happen behind the scenes with your vendors. Because of this, sometimes it’s easy to be lulled into complacency. If left unchecked the Plan can suffer.
Over the years, I have found July to be a perfect time to set aside and work on some simple plan considerations on behalf of my clients. Here are just a few easy steps you or your plan advisor can take this week to keep things on the straight and narrow:
Plan Audit. It’s time to call your accountant and get the Plan Audit rolling. An independent audit of your plan is required if you have more than 100 eligible participants. If you are hovering in and around the 80 to 100 mark, you should get your ERISA attorney or TPA to help determine whether or not you are required to have an audit completed (the rules are complicated so do not make this determination on your own). Make sure you introduce your auditor to the TPA and other vendors and authorize everyone to talk to each other directly and share information.
File an Extension. Your Form 5500 is due at the end of July but an automatic extension is allowed to mid-October. Interestingly, the IRS only accepts paper extensions for Form 5500’s. In order to insure that your extension is received and processed before the July deadline, you should instruct your TPA to file an extension on your behalf as soon as possible. Form 5500 is an informational return only, and extensions are very commonly needed even by the best TPA’s to work through their heavy volume of filings with care and precision.
Check your Forfeiture Account. The DOL frowns upon cash balances in your forfeiture account. Your plan document specifies how this money should be used and distributed for the benefit of the Plan. Check your balance and coordinate with your recordkeeper to reduce your forfeiture balance to zero before the end of the year.
Clear out Terminated Participant Balances. Small terminated participant balances left unchecked can cripple your plan over time. These small balances can disqualify you from better pricing, can trigger the audit threshold, and make it more difficult to change vendors if needed. Every year around this time, you should run a report of terminated participants with balances under $5,000. Coordinate with your vendors to force these balances out of your plan as allowed by DOL guidelines.
Benchmark. Not every year, but every few years (and when you hit relevant participant and plan asset levels) you need to benchmark your plan. Under the new regulations, benchmarking is your BEST defense if faced with questions from the DOL, your employees, or trial lawyers. Don’t wait until the end of the year because 401(k) vendors get really busy in the 4th quarter. Also do not rely solely on benchmark data freely provided by your current recordkeeper (you get what you pay for).
Check your ERISA Bond. You are required to maintain an ERISA Bond on the plan for at least 10% of the plan balance (generally up to a maximum bond of $500,000). 2013 was a great year in the market so you might need to increase your bond limit with your P&C Broker. Most ERISA bonds are written for three year policy periods so this is an easy compliance issue to overlook.
Complacency is dangerous with regard to 401(k) Plans. Problems rarely arise but when they do occur they are usually big, messy, and expensive to fix. It’s easy to become complacent because the default systems and processes almost encourage neglect when left on their own.
Use this simple guide to become more engaged in your plan this week. From there, you may want to map out a more proactive strategy with additional touchpoints throughout the year.
By Rob Schulz
Rob Schulz, CFP® is a Principal with Schulz Wealth, and a Registered Representative through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. He is also an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Schulz Wealth are not affiliated. These are the views of Rob Schulz and not those of Cambridge,SChulz Wealth, or any of their affiliates. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. Diversification and asset allocation strategies to not assure profit or protect against loss.