MAKING A GOOD 401(k) PLAN EVEN BETTER

TOPICS COVERED

Increasing Participation

Understanding Your Plan

Roth 401(k)

Safe Harbor

Investment Policy Statement

Managing Fiduciary Responsibility

INCREASING PARTICIPATION

Annual Employee Education Meetings (or more frequent) Mandatory attendance for new hires

Periodic distribution of literature to promote plan and relevant retirement planning or investment topics

Decrease eligibility waiting period to join plan • Can keep the waiting period for employer contributions longer -

known as “Dual Eligibility”

Offer more frequent entry dates

INCREASING PARTICIPATION

Incorporate a match formula that requires / entices employees to defer to receive an employer contribution

Design a match formula that requires greater deferrals to maximize match

• Instead of matching 100% of 3% = a maximum match of 3% ...• Offer a match of 50% of 6% = a maximum match of 3%

INCREASING PARTICIPATION

Auto Enrollment

If no affirmative deferral election is made by employee (including 0%), they are automatically enrolled in the plan for a set deferral % (typically 3 – 6%)

Have option to also auto-increase beginning deferral % each year by 1% up to a maximum of 10%

Employee has 90 days to reverse initial deferrals out of plan without penalty

Stopping or modifying future deferrals determined by provisions of the plan

UNDERSTANDING YOUR PLAN

Need to understand and evaluate provisions

Eligibility Waiting Period

Is there also a minimum # of hours required or simply length of service?

Dual Eligibility

Entry Date

Exclusions by classification

Plan’s Definition of Compensation

Deferrals

Changes to deferrals

UNDERSTANDING YOUR PLAN

Need to understand and evaluate provisions (continued)

Match

Annual Employer Contributions

Vesting

Withdrawals

Using and Allocating Forfeitures

Updating participant records

ROTH 401(k) A new, optional, account source within an existing 401(k) retirement

plan

Combines some features of Traditional 401(k) and Roth IRA

Gives the OPTION to set aside money for retirement on an after-tax basis

Earnings grow on a tax-deferred basis and qualified withdrawals made tax free (at age 59 ½ and held the account for 5 years)

NO INCOME LIMITS – all participants are eligible

Can also allow pre-tax sources to be ‘converted’ to Roth 401(k) source

SAFE HARBOR PLAN DESIGN Allows employers to avoid Compliance Testing on 401(k) deferrals

Highly Compensated Employees can defer up to plan or IRS maximum each year

Requires an employer contribution to plan (limits and restrictions apply) Certain Match or Profit Sharing formulas qualify

Generally requires accelerated vesting (immediate or 2 year)

Can be made in addition to other “non-safe harbor” plan contributions

INVESTMENT POLICY STATEMENT Intended to assist Plan Fiduciaries to make investment related

decisions in a prudent manner

Outlines underlying philosophies and process for selection, monitoring and evaluation of investments offered to participants

Should be reviewed and applied at least annually

Third party administrator or plan provider does not necessarily provide or maintain this even if they have provided investment menu

If investments challenged by participants, a sound Investment Policy Statement and process can provide protection

THE ROLE OF A PLAN FIDUCIARY

Many activities associated with plan operations make the person performing them a fiduciary

Fiduciary status based on functions, not job title

Act on behalf of participants, subject to standards of conduct, and liability

Act solely in interest of participants Carry out duties prudently Follow plan documents Diversify investments Pay reasonable plan expenses

MANAGING FIDUCIARY RESPONSIBILITY

Maintain an updated, IRS approved document

Be aware of responsibilities as Fiduciary

Fiduciaries and Plan Committee meet at least annually

Maintain due diligence file

Investment employees’ deferrals in a timely manner

Review investments at least annually including performance and fees (document this review)

Offer employee education at least annually

SUMMARY

A few simple improvements and changes can allow for significant benefits

Periodically monitor and review what is currently offered

Document reviews

Be aware of and consider new alternatives and improvements