PLANSPONSOR - August/September 2019 - 53

a collection of documents, sometimes
referred to as the " paper-clip " approach.
In that, there was one centralized document,
with additional provisions found in
others-e.g., in underlying investment
product contracts, administrative and
service agreements, procedures and, if
applicable, state statutes and regulations.
Fast-forwarding to April 2013, the IRS
issued Revenue Procedure 2013-22, establishing
a preapproved plan program for
403(b)s and offering a " remedial amendment
period for 403(b) plan documents. "
As Kimberly Boberg, of counsel
with Groom Law Group, Chartered, laid
out, the remedial amendment period lets
403(b) plan sponsors restate their plan by
adopting an IRS-approved prototype or
volume submitter plan document-retroactively
effective January 1, 2010. During
the remedial period, plan sponsors may
update their plan document to reflect any
ways their plan has evolved.
According to both experts, most
sponsors should review the definition of
" compensation " (see ERISA Examination,
page 62, for more on this subject). They
further agreed that, if a 403(b) plan
sponsor thinks it has no issues, it probably
should look closer.
The application of universal availability
rules is a common source of
mistakes, Kidwell said. " You can't just
make people eligible. You need to let
them know at least annually that they're
eligible. Often this is missed, and no
regular eligibility notice goes out. " -JM
Discouraging Plan
Leakage
" Plan leakage " is part of the lexicon of the
retirement plan industry, but there is no
standard definition for it, said Jeff Fister,
senior relationship manager at ADP LLC.
He cited a Government Accountability
Office (GAO) study, which defined
leakage as tapping into retirement savings
prior to retirement. Here, " tapping into "
referred to hardship withdrawals, lumpsum
payments taken at job separation, and
loan balances not repaid. But Fister said he
believes current participant loans should
(FROM LEFT:) Marianne W. Marvez of Innovest Portfolio Solutions LLC; Beth Pattillo of Leidos; and Jeff
Fister of ADP LLC.
be included, too, as they pose a missed rate
of return (ROR) opportunity. His firm also
finds that loan-takers save considerably
less in defined contribution (DC) plans
than do non-loan-takers. " With one client,
it's about 30% less, " he observed.
Plan sponsors have a fiduciary duty
to monitor loans just as they would other
investments, he said. The fact that the
IRS is changing Form 1099 to capture
data about loan offsets, and that the GAO
is recommending Form 5500 changes
for loan reporting, shows " Big Brother
is watching and plan sponsors should be
mindful, " he said.
However, Beth Pattillo, director of
retirement programs at Leidos, a 2019
PLANSPONSOR Plan Sponsor of the
Year finalist in the Corporate 401(k)
>$500 million category, said her firm
believes " loans are not evil. We believe
loans serve a purpose, but we give participants
strong education about what taking
a loan can do to their retirement savings
and why they really want to pay it off. " Her
firm also allows terminated participants
to continue paying off their loan after
termination, to help avoid plan leakage.
Pattillo said 54% of her company's
401(k) plan assets are in terminated
participants' accounts. Besides making
installment payments and partial withdrawals,
terminated participants may
borrow from their account but will receive
pointed education about paying it back.
As to other plan leakage, Fister said
sponsors might want to reconsider cashing
out employee accounts that have small
balances and educating employees about
the benefits of leaving their account when
terminating. " Especially if a company
often rehires employees that terminate,
the sponsor wants the employee to come
back in a better position, rather than
starting from scratch, " he said.
Pattillo said Leidos this year added
an after-tax deferral option to its 401(k)
plan. " We educate employees that their
after-tax savings can grow and be used for
emergencies, but they first need to defer
enough compensation on a pre-tax basis
to get the full company match. "
Pattillo said sometimes participants
cash out their account on termination
because the rollover process can
be time-consuming and confusing.
Leidos is working with Vanguard and
the Depository Trust & Clearing Corp.
(DTCC) to establish an electronic rollover
solution. Leidos also lets terminated
participants roll money from other retirement
plan savings accounts into its plan.
There is no one solution to discouraging
plan leakage, Fister said. He also
recommended learning your plan's
metrics and using anecdotal information
from participants to personalize
communications. -RM
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