As we approach the end of the plan year for most plans, now is a good time for plan administrators and plan sponsors to give their 401(k) plans a quick once over to see if everything is properly in place. The IRS even provides a 401(k) plan checklist with some suggested corrective mechanisms that can be taken to bring plans into compliance.

A good starting place for a compliance tune up is to see if you can answer some basic questions about your plan:

  1.         Who are the trustees?
  2.         Who is the plan administrator?
  3.         Who are the outside service providers and how often are they contacted?
  4.         What are the plan’s eligibility rules and who is responsible for verifying them?
  5.         How are participants notified of eligibility?
  6.         How is plan documentation distributed?
  7.         Where are the plan records kept?
  8.         Who is responsible for preparing and filing the form 5500?

After you get past these, some basic questions about plan administration come into play:

  1.            Who keeps track of contributions and limits?
  2.            How does the plan define “compensation”?
  3.            What is the vesting schedule?
  4.            Are there required contributions from the employer?
  5.            Who is responsible for the discrimination testing?
  6.            Does the plan permit loans and how are they tracked?
  7.            Who is responsible for reporting to participants?
  8.            How are distributions made and who is the contact person?

The reason I bring this topic up is that I was recently working with a client who had one person who was solely responsible for benefit administration. Unfortunately that person passed away suddenly and no other person in the organization could answer any questions about the 401(k) plan. Although it seems like the above information is simple to collect, the company still spent hours and hours recreating the plan history because they neglected to keep a record of how the answers to these questions had changed over the years.
Think of your 401(k) plan as a well maintained car. It needs a check up on a regular basis to keep running smoothly. You have to keep records of what was done and you have to know where the important information is if you need it. Just like your car, you hope your 401(k) plan never breaks down. But in anticipation of a future problem, it is worthwhile to stop and make a record of the responsibility for plan administration and the current status of the plan. That way it will be easier to make repairs if they ever become needed.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at kmcmurdy@foxrothschild.com or (212) 878-7919.

The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

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