Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.
Operating a retirement plan can be equated to operating a gadget. Just as the gadget has a manual for smooth operation, the retirement plan has plan documents that fiduciaries need to refer to. These documents are usually given to plan sponsors by their service provider, or custom prepared by an attorney or service provider. Below are a few provisions found in these plan documents, which need to be carefully reviewed to ensure a retirement plan is operating smoothly?
- Eligibility –Indicates if/when employees are eligible to participate in the plan.
- Compensation – It’s always a good idea to know how compensation is defined in the plan document for purposes of contributions.
In addition to the provisions mentioned above, plan sponsors should be familiar with the following:
- Notices – There are required notices to employees and the specified delivery schedules for those notices.
- Education – Keeping yourself educated on plan terms is an important factor and the best place to start is by utilizing all materials offered by your service provider.
Although the list above is minimalistic in nature it will get you going in the right direction and in the process, it may help you uncover things about your plan that you were unaware of. Understanding your plan terms is as simple as following a plan document. You should realize that that anything short of this practice could cost the plan heavy penalties and result in an IRS disqualification.
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