New Year CheckupSubmitted by LHD Retirement on January 10th, 2019
Advisors and their plan sponsor clients have a handful of administrative tasks to complete before enjoying their families, good food, and the reflection that the holidays bring. As plan sponsors daily workloads begin to slow down, this becomes an opportune time to not only check these administrative duties off the list, but also to evaluate and understand what has been working and what hasn’t in the plan’s day-to-day procedures.
- Evaluate Administrative Procedures—Plan operations should be analyzed for any gaps in compliance. As year-end approaches, advisors and plan sponsors could benefit from a self-assessment of the plan’s administration. Does the sponsor make contributions on a timely basis? Do contributions match the elections made by participants? Do loans and distributions meet the rules of the plan? Participants should receive proper notification of their eligibility to enter the plan. Reflect on any discovered issues and set in motion processes to correct them in the future.
- Plan Document Review—As applicable, the plan document should be updated to adhere to applicable laws and regulations, if necessary. Changes to hardship distribution rules due to the Bipartisan Budget Act of 2018 go into effect on January 1st, 2019. Some of these changes may require updates to the plan document. Remember that plan amendments require timely notification to participants and any updates should be reflected in an updated Summary Plan Description.
- Audit and Testing Preparation—Plan sponsors should ensure that they are counting and tracking all employees, including terminated, and that their compensation, ownership, and classification records are up to date. Consultants can set their clients up for more efficient testing by helping them to understand the nuances that go into the census, as well as any pitfalls they may encounter. For plans about who expect to have their first audit next year, now is a good time to vet potential auditors. Work on getting the audit file organized so it doesn’t become an emergency!
- Annual Investment Policy Statement Review—Check that the assumptions and criteria set forth in the plan’s Investment Policy Statement (IPS) are still applicable to the plan’s goals and objectives. The IPS should be reviewed at least on an annual basis, and now is a good opportunity to make any necessary changes. Plan investments should also be reviewed for adherence to the IPS. Any that do not meet the requirements should be documented and discussed with the plan’s committee. All findings and methodologies should be documented, and if changes are elected, participant notice of the changes and updated expenses should be sent with at least 30 days’ lead time.
- Participant Notices—Some participant notices are due by year end. These include, as applicable: Safe Harbor, Qualified Default Investment Alternative (QDIA), and Automatic Enrollment Notices. While not necessarily due at year-end, sponsors often include the annual ERISA 404a-5 participant fee disclosure due every 12 months with these notices.
Jess DeGabriele, CFA®, CRPS®, is an Investment Strategist with LHD Retirement. He can be reached at firstname.lastname@example.org.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
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