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MAKING A GOOD 401(k) PLAN EVEN BETTER

MAKING A GOOD 401(k) PLAN EVEN BETTER. TOPICS COVERED. Increasing Participation Understanding Your Plan Roth 401(k) Safe Harbor Investment Policy Statement Managing Fiduciary Responsibility. INCREASING PARTICIPATION. Annual Employee Education Meetings (or more frequent)

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MAKING A GOOD 401(k) PLAN EVEN BETTER

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  1. MAKING A GOOD 401(k) PLAN EVEN BETTER

  2. TOPICS COVERED • Increasing Participation • Understanding Your Plan • Roth 401(k) • Safe Harbor • Investment Policy Statement • Managing Fiduciary Responsibility

  3. INCREASING PARTICIPATION • Annual Employee Education Meetings (or more frequent) • Mandatory attendance for new hires • Periodic distribution of literature to promote plan and relevant retirement planning or investment topics • Decrease eligibility waiting period to join plan • Can keep the waiting period for employer contributions longer - known as “Dual Eligibility” • Offer more frequent entry dates

  4. INCREASING PARTICIPATION • Incorporate a match formula that requires / entices employees to defer to receive an employer contribution • Design a match formula that requires greater deferrals to maximize match • Instead of matching 100% of 3% = a maximum match of 3% ... • Offer a match of 50% of 6% = a maximum match of 3%

  5. INCREASING PARTICIPATION • Auto Enrollment • If no affirmative deferral election is made by employee (including 0%), they are automatically enrolled in the plan for a set deferral % (typically 3 – 6%) • Have option to also auto-increase beginning deferral % each year by 1% up to a maximum of 10% • Employee has 90 days to reverse initial deferrals out of plan without penalty • Stopping or modifying future deferrals determined by provisions of the plan

  6. UNDERSTANDING YOUR PLAN Need to understand and evaluate provisions • Eligibility Waiting Period • Is there also a minimum # of hours required or simply length of service? • Dual Eligibility • Entry Date • Exclusions by classification • Plan’s Definition of Compensation • Deferrals • Changes to deferrals

  7. UNDERSTANDING YOUR PLAN Need to understand and evaluate provisions (continued) • Match • Annual Employer Contributions • Vesting • Withdrawals • Using and Allocating Forfeitures • Updating participant records

  8. ROTH 401(k) • A new, optional, account source within an existing 401(k) retirement plan • Combines some features of Traditional 401(k) and Roth IRA • Gives the OPTION to set aside money for retirement on an after-tax basis • Earnings grow on a tax-deferred basis and qualified withdrawals made tax free (at age 59 ½ and held the account for 5 years) • NO INCOME LIMITS – all participants are eligible • Can also allow pre-tax sources to be ‘converted’ to Roth 401(k) source

  9. SAFE HARBOR PLAN DESIGN • Allows employers to avoid Compliance Testing on 401(k) deferrals • Highly Compensated Employees can defer up to plan or IRS maximum each year • Requires an employer contribution to plan (limits and restrictions apply) • Certain Match or Profit Sharing formulas qualify • Generally requires accelerated vesting (immediate or 2 year) • Can be made in addition to other “non-safe harbor” plan contributions

  10. INVESTMENT POLICY STATEMENT • Intended to assist Plan Fiduciaries to make investment related decisions in a prudent manner • Outlines underlying philosophies and process for selection, monitoring and evaluation of investments offered to participants • Should be reviewed and applied at least annually • Third party administrator or plan provider does not necessarily provide or maintain this even if they have provided investment menu • If investments challenged by participants, a sound Investment Policy Statement and process can provide protection

  11. THE ROLE OF A PLAN FIDUCIARY • Many activities associated with plan operations make the person performing them a fiduciary • Fiduciary status based on functions, not job title • Act on behalf of participants, subject to standards of conduct, and liability • Act solely in interest of participants • Carry out duties prudently • Follow plan documents • Diversify investments • Pay reasonable plan expenses

  12. MANAGING FIDUCIARY RESPONSIBILITY • Maintain an updated, IRS approved document • Be aware of responsibilities as Fiduciary • Fiduciaries and Plan Committee meet at least annually • Maintain due diligence file • Investment employees’ deferrals in a timely manner • Review investments at least annually including performance and fees (document this review) • Offer employee education at least annually

  13. SUMMARY • A few simple improvements and changes can allow for significant benefits • Periodically monitor and review what is currently offered • Document reviews • Be aware of and consider new alternatives and improvements

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