PLANSPONSOR - October/November 2018 - 69

features and what to expect of the plan. "
Topics to be covered include eligibility
and vesting requirements, plan features,
an explanation of who makes contributions
and at what rates, and instructions for how
participants claim their benefits. ERISA
requires this to be given to employees
within 90 days of their eligibility date.
" Courts have used the SPD to help
them interpret the plan document, therefore,
it's crucial that the [two] not conflict, "
Watson says. " Generally, you want the firm
that prepared your document to prepare
the SPD. "
* Summary of material modifications
(SMM). The SMM must be sent to participants
and their beneficiaries to report any
changes to the plan. Similarly, if required
information in the SPD gets changed, an
updated SPD must be sent. The deadline
for both is 210 days from the end of the
plan year when the change occurred.
* Individual benefit statement (IBS).
For most 401(k) plans, the IBS is sent
annually to notify 401(k) participants of
their account balance plus vested amounts.
* Summary annual report (SAR).
The IRS describes the SAR as " a narrative
summary of the plan's financial status
and summary of the information on [its]
annual report (Form 5500 ). "
* Disclosures required for the fiduciary
safe harbor for automatic rollovers
to individual retirement plans for certain
mandatory distributions exceeding $1,000.
A participant who terminates employment
with less than $1,000 in his 401(k) account
is subject to a mandatory distribution; if
he fails to make a distribution election, his
account will be rolled into an IRA. This
provision must be disclosed, by SPD or
SMM plus an IRS 402(f) notice-which
explains the rollover rules-before the
distribution is made.
* Blackout period notice. When a
401(k) plan shuts down for more than
three consecutive business days-say, for
a change in recordkeeper or investment
options-participants and beneficiaries
will be restricted in making account transactions.
The notice, sent at least 30 but no
more than 60 days prior, advises them of
the shutdown, the dates, the reason for it
and how they will be affected.
* Qualified default investment alternative
(QDIA) notice. Required for all
plans using a QDIA, this notice explains
to participants and beneficiaries how
their contributions will be invested in the
vehicle for them, their rights to redirect
their contributions, and the QDIA's investment
objectives. This must be supplied at
least 30 days before the employee's eligibility
date or before the first contribution
is made to his account. Annual notices
must also be sent.
* Automatic contribution arrangement
notice. For plans that automatically
enroll employees, the sponsor must send
nonparticipants a notice that explains this
arrangement, as well as their rights and
obligations under it.
* Domestic relations order (DRO)
and qualified domestic relations order
(QDRO) notifications. For those times
when a participant is undergoing a
divorce or similar proceeding, the plan
needs to have a QDRO procedure so it can
review court orders.
Documents on Policies
Optional plan offerings are governed by
policies. As the options are unnecessary,
written policies are, too. And, as there are,
thus, no requirements for what a policy
should include, the best advice, sources
say, is keep them simple.
" My standard comment, " says David
Levine, an ERISA attorney and principal
with Groom Law Group, Chartered, in
Washington, D.C., is 'Don't have too
much paper so you won't hang yourself.' "
Otherwise, he says, a legal challenge could
possibly result. " The more paper requirements
you make, the easier it is to forget
or miscomply with one. "
Caveats aside, here are the most
common optional plan documents.
* Investment policy statement (IPS).
The most prevalent optional document
is the IPS. Typically composed with the
plan's fund manager, it sets down general
rules for the manager to follow in how
it invests the plan's assets and monitors
the portfolio to meet the particular
objectives of the plan. Levine says, " My
personal belief is you should make investment
policy statements more aspirational,
where they inspire certain approaches,
rather than prescriptive where they
mandate you. "
* Fee policy statement. The purpose of
a fee policy is to help the plan committee,
on a regular basis, evaluate the reasonableness
of plan administration and investment
fees. For a written document, Levine
recommends " something short and
sweet. " A firm could also " just have a practice,
saying, 'Every quarter we'll review our
fees.' You don't need to say we're going to
do it on this month and day. " This way, the
firm avoids locking itself down, he says,
" in case they want to change their mind. "
* Loan policy statement. A loan policy
statement contains the plan's position on
plan account loans-e.g., whether participants
may take them, how many they
may take concurrently, whether they may
contribute to the plan while paying back
their debt, and other restrictions.
Mandatory Changes
Occasionally, the plan will need to be
amended, perhaps because of revisions in
the law or in the plan's design elements.
Any changes to the plan document will
require a formal process, where the document
is signed and dated, maybe needing
to be approved by the board of directors,
Watson says. Sometimes, further requirements
may have to be met.
According to Watson, there is a
constant need to keep up with changes in
the law and to modify one's plan to address
them. Preapproved plans often have the
advantage here, he says, as the base-plan
designer will notify them about a needed
amendment, possibly draft it for them or
even adopt it on behalf of its whole client
base. " One thing IRS auditors always are
looking for is 'Have you adopted on time
all of the various required amendments?' "
he says. -Karen Wittwer
PLANSPONSOR.com October-November 2018 69
http://www.plansponsordigital.com/plansponsor/october-november_2018/TrackLink.action?pageName=69&exitLink=http%3A%2F%2FPLANSPONSOR.com
PLANSPONSOR - October/November 2018

Table of Contents for the Digital Edition of PLANSPONSOR - October/November 2018
