Received a Fee Disclosure Notice?
401k Fee Disclosure took effect July 1st. For the first time employers are required to disclose what 401k plan participants are paying in fees. There is a common misconception regarding fees in this area. According to a survey in 2011 conducted by AARP 71% of plan participants do not think they pay any fees. These communications must be provided by August 30th, but are not specific to the plan participant. November 15th will be the first time people see what they are actually paying.
You may have received communications regarding this new law. Often these communications are not clear and can create apprehension. Rest assured, Compensation Systems, Inc. is here for you. We are prepared to answer any questions you may have. You may wish for us to review your fees and evaluate their reasonableness or perhaps you'd just like us to review the communications you've received and break them down for you, regardless we are happy to help. As always, we pride ourselves on our high standard of service. Bringing this valuable information to you, providing counsel and support are ways in which we can deliver the level of service our clients have come to expect.
Questions regarding recent communications? Call Kristi Baker, 317.844.6466
When are employee contributions required to be
Guidelines state participant's contributions must be
remitted by the date contributions can be reasonably segregated from
the general business assets. The view recommended is for participant
contributions to be remitted as soon as reasonably possible. All
employee contributions should be made with consistency. Failure to
comply can result in criminal and civil penalties.
do we handle a terminated employee's distribution?
Complete the termination notice and fax to our office
(317-844-5125). CSI will provide the employee with the necessary
information to make an informed decision on their distribution.
Necessary information and signatures to distribute the monies will
be sent to the employer's office when the participant makes an
election and completes the required forms.
How do we remove terminated employees from
our qualified retirement plan?
The IRS regulations allow the employer to cash out any
terminated employee with a vested account balance of less than
$5,000. It is recommend for the Trustee to send a certified letter
to the terminated employee notifying the participant of their
distribution rights and provide the necessary termination paperwork.
If the benefit form is not received by the Trustee within 30 days,
the Trustee authorizes the cashout of the benefits. Participants
with over a $5,000 vested account balance cannot be forced from the
Should we provide a loan
Loans have many benefits in qualified plans, but also
have some disadvantages. Loans allow the participants to remove
to 50% of their vested account balance (not to exceed $50,000)
without tax consequences. The participant selects a repayment
period, usually up to 5 years, and pays the loan with after tax
dollar typically through payroll. Interest is charged on the loan
and calculated into the payments. Loans offer an easy way for
participants to access their monies.
Some of the disadvantages of the loan are increased
administration for the employer. The employer will be responsible
for remitting the loan repayments. If the employee terminates or
defaults on a loan, the employer has the responsibility to track
update the loans as necessary. Other disadvantages of the loan is
the potential reduction in retirement benefits for the employee
the loan is not paid back, the participant has to stop contributing
to the plan in order to make the loan repayments, or market
fluctuations affect the loan.
If both a loan and hardship provision are offered
together, a participant must exhaust the loan options prior to being
eligible for the hardship withdrawal .
Should we provide for hardship
The hardship provision is used as a last resort for a
participant to receive monies. Hardship provisions allow a
participant to withdraw monies for the following safe harbor
- Eviction from residence
- Purchase of a primary residence
- Medical expenses which exceed 7.5% of the employee
Adjusted Gross Income (AGI)
- Higher education expenses for employee or
- Tuition payments of post-secondary education for me or my dependents
- Expenses for the repair of damage on my primary residence that would qualify for the casualty deduction under IRC 165.
- Payment for burial or funeral expenses for my deceased parent, spouse, children, or dependents.
If the participant qualifies, typically, only the
monies the participant has electively contributed is allowed for
withdrawal. The participant will be subject to a 10% penalty, plus
federal, state and local taxes (if applicable). The participant also
may not contribute to the plan for six (6) months.
When can a re-hired employee, who was previously
eligible for the plan prior to termination, come back into the
An employee who is rehired with less than a five (5)
year break in service is immediately eligible for the retirement
plan upon re-hire.
Who signs the 5500 form?
The plan trustees and employers sign the 5500 form. In
many cases the trustee and the employee are the same person, and the
same person can sign both lines on the 5500.
Do we need a fidelity bond?
For self trusteed plans, it is required the plan
obtain a fidelity bond. The fidelity bond is required to be
maintained in the amount of 10% of the plan assets. There is a
question on the annual 5500 form requesting information on the
fidelity bond. CSI does not sell or provide fidelity bonds. Normally
they may be purchased through a property and casualty agent.
Are my participants eligible for catch up
Catch up contributions are allowed in IRA's, 403(b)'s
and 401(k) plans. Participants are eligible for the catch up
contribution as long as they obtain age 50 or older by the last day
of the calendar year.
Should I offer a match?
Matching contributions are a great way to encourage
participation. Matching contributions can be fixed or discretionary.
The most common form of matching is a fixed formula. For example a
typical match is a $.50 match on each $1.00 of an employee's
contributions up to 6% of their pay. Typically this type of fixed
match is made on a payroll basis.
Discretionary formulas allow for the employer to
decide on the amount or percentage of the contributions, and can and
will vary year by year. Typically this type of match is made once a
year after the end of the plan year.
What types of investments and how many
should we offer?
Every qualified plan must have a plan trustee(s) who
is legally responsible for selecting the type of investments in the
plan. Often, plan sponsors do not make this decision alone, but seek
the advice and guidelines of a qualified investment advisor who is
familiar with retirement plans and the variety of investment options
The plan trustee(s) is responsible for selecting an
investment advisor and the company or companies that will invest the
qualified monies. Federal law requires choice are made in the best
interest of the participants.