by: Aaron Epstein, QKA
Plan Sponsors receive significant support in managing and administering their retirement plans from TPAs, recordkeepers, financial advisors and accountants. However, the Plan Sponsors still retain overall responsibility for the plan.
Below is a list of common tasks that must be performed by Plan Sponsors:
Providing Census Data
Plan Sponsors must provide accurate employee census data to their TPA. This data enables the TPA to perform the required compliance and administrative work for the plan. Census data includes dates of birth, hire, termination and rehire, hours of service, gross compensation and pension plan contributions. The Plan Sponsor should also notify the TPA about any corporate changes that might impact the pension plan, such as a change in ownership, merger or acquisition, change in corporate name or Employer Identification Number (EIN), change in legal entity type or trustee of the plan.
Tracking Eligibility
Plan Sponsors should be aware of the eligibility requirements of their plan. As employees come close to reaching the date when they can enter the plan, the Plan Sponsor should assist them in enrolling in the plan. The sponsor should provide new participants with the Summary Plan Description (SPD), Enrollment Booklet and instructions for how to enroll in the plan.
In addition to the plan’s eligibility requirements, plan sponsors need to be familiar with the Long Term Part Time (LTPT) employee eligibility rules introduced by the SECURE Act of 2019 and modified by SECURE 2.0 (2022). A helpful article to remind Plan Sponsors about the intricacies of this law can be found here: LTPT. Penalties are assessed if eligible employees are not given the opportunity to participate in the plan due to the negligence of the plan sponsor.
Timely Deposit of Employee Contributions and Loan Repayments
Plan Sponsors have a responsibility to their participants to timely remit employee 401(k) deferrals and, if applicable, loan repayments on the earliest date that the deferrals/loan repayments can reasonably be segregated from the employer’s general assets.
The earliest date for depositing contributions is based on individual facts and circumstances—meaning the funds must be remitted as soon as the employer can reasonably segregate them from its general assets.
In general, for plans with fewer than 100 participants, the DOL provides a 7-business-day safe harbor rule; if the deposit is made within this timeframe, it is deemed timely, even if the employer could have made the deposit sooner. For larger plans (100 participants or more), the determination of timeliness is based strictly on the individual employer’s operational facts and circumstances, which often requires deposit within a few business days.
Failure to remit these amounts in a timely fashion will result in penalties and the requirement to make up “lost earnings” plus interest on those lost earnings through the date of the late remittance.
Plan sponsors should review their internal procedures to ensure that amounts withheld through payroll deduction are being remitted as soon as feasible and that there are checks and balances in place to avoid any oversights.
Approving Distributions
Funds from the 401(k) plan can only be distributed to participants if a distributable event has occurred. Plan sponsors should be familiar with the distributable events that are defined in the plan document.
Plan sponsors are also responsible for ensuring that all eligible employees receive their Required Minimum Distribution (RMD). With the changes introduced by the SECURE 2.0 Act, plan sponsors must stay current with the updated RMD requirements.
Retaining Plan Documents
Although the plan’s TPA and other service providers may keep copies of the plan documents, the IRS states that it is the responsibility of the plan sponsor to retain the plan documents since the inception of the plan. Plan documents include the Basic Document, Adoption Agreement and Plan Amendments.
Maintaining Beneficiary Forms
It is the plan sponsor’s responsibility to maintain the records of the original Beneficiary Election forms. They should distribute the Beneficiary Election Form with the Summary Plan Description to new participants in the plan and to any participants that do not currently have a form on file.
Managing the Forfeiture Account
Beginning in plan years on or after January 1, 2024, a plan must use forfeitures no later than 12 months after the close of the plan year in which the forfeiture occurred. For example, if a forfeiture occurs in a calendar year plan in 2024, the forfeiture would have to be used by 12/31/2025. Plan sponsors can use forfeitures to 1) reduce employer contributions 2) enhance employer contributions or 3) pay plan related administrative expenses.
Plan sponsors should review their plan documents to confirm that it provides for the 3 allowable options regarding how forfeitures may be used.
ERISA Fidelity Bond Coverage
Under Department of Labor (DOL) regulations, retirement plans need to maintain an ERISA Fidelity Bond. A fidelity bond protects the assets in the plan from misuse or misappropriation by the plan fiduciaries. Plan fiduciaries include the plan trustees and any person who has control over the management of the plan and its assets.
The required bond must be a minimum of 10% of the total plan assets' value. However, if the plan includes any non-qualifying assets, the bond amount must instead cover 100% of the value of those specific assets.
The bond is also subject to a maximum, which is generally $500,000 for plans without employer securities and $1,000,000 for plans that hold employer securities.
Providing Annual Notices to Participants
The Department of Labor (DOL) requires that employers provide certain information to eligible plan participants and beneficiaries. These regulations help ensure that participants and beneficiaries have the information they need to make informed retirement planning decisions.
These Annual Notices include, but are not limited to:
ERISA Section 404(a)(5) Fee Disclosure: Requires plan administrators to disclose detailed investment-related information to participants and beneficiaries at least annually. This includes anticipated expenses and fees charged to a participant’s account.
Automatic Enrollment Notice: For plans with an automatic enrollment feature, the notice details the plan’s automatic enrollment process and participant rights.
Safe Harbor Notice: For safe harbor plans, the notice provides details of the safe harbor feature.
Qualified Default Investment Alternative Notice (QDIA): The QDIA Notice describes the plan’s default investment and the participants’ rights to direct their investments.
Summary Annual Report (SAR): The SAR is a concise document summarizing the key financial details of the plan, including assets, expenses, contributions, and investment performance.
These annual notices are often prepared and distributed by the plan’s TPAs and recordkeepers. Check with your service providers to make sure that all the annual notice requirements are taken care of.