401(k) Essentials for 2014: Fundamentals, Contributions, Limits, and Updates

1. 401k Essentials for 2014

2. 401(k) fundamentals

3. Contributions Limits • Under 50 years of age • $17,500 • Over 50 years of age • $17,500 • Plus Catch up contribution up to $5,500 • Salary deferral plus employer contribution is limited to $52,000

4. Employee Education • Education programs work to improve participation and contribution rates – despite media report • Long term and ongoing commitment is required by the company and advisor • Most 401k sponsors have the best intention of holding education sessions but day to day concerns of the business pre-empt action • Schedule now to support all open enrollment dates

5. Enrollment & Documentation • Review HR records to ensure that accurate enrollment forms are on file for ALL eligible employees • Changes in contribution rates must be made in writing • Records for those who decline participation are most often overlooked but most critical to have on file for a plan sponsor • Recent lawsuits and emphasis on retirement readiness underscore the importance of this documentation

6. Distributions for Terminated Employees • Most plans have unnecessary accounts for terminated employees • Account values under $1,500 can be paid to participants without their authorization* • Account values between $1,500 and $5,000 can be distributed to an IRA without participant authorization* • With an ever increasing burden to provide regulatory notices, accounts for terminated employee are costly to the plan *Subject to provisions of your plan document

7. Legal & Legislative update

8. Proprietary Funds • Conflicts of interest • May have revenue-sharing • Company receives money on assets managed • Overpriced and underperforming • Lawsuits • Gordan v Massachusetts Mutual Life Insurance Company • Alan H. Tralins v. JPMorgan Chase & Co. • Class action against Fidelity

9. In-Plan Roth Conversion • American Taxpayer Relief Act • Permits participants in pretax 401k and Profit Sharing accounts to transfer amounts to Roth account. • Treated as taxable qualified rollover contribution • Disbursements from Roth account are paid tax-free • Plan Document Changes • Plan must allow Roth contributions • In-plan conversions must be allowed by plan document

10. Plan document

11. Document Review • Plan document review should be performed yearly • Questions to ask when reviewing: • Are plan operations in line with plan document? • Has the plan document been updated to reflect regulatory changes? • Are there changes that can make the plan more efficient? • Auto-Enrollment • Auto-Escalation • Safe-Harbor Plan Design • Employer Contribution and Vesting Schedule • Roth Contributions

12. Document Restatement • Required by DOL by spring 2016 • Incorporates mandatory amendments from the last 5 years in the document • Opportunity to make other changes

13. Important Plan Features to consider

14. Managed Account Feature • Allow a participant’s assets to be allocated based on market trends and analysis • Can be used as Qualified Default Investment Alternative (QDIA) • Provides added fiduciary support to the plan • Provides advice and assistance that many participants crave

15. Fiduciary Support • 3(21) Co-Fiduciary • Monitors investment lineup • Directs the trustee when a change is necessary • Provides support in situations of litigation on funds and fund lineups they recommend • 3(38) Fiduciary • Selects and monitors investment lineup • Automatically makes change when necessary • Provides support in situations of litigation on funds and fund lineups they select and monitor

16. Department of Labor audit alert

17. 5500 Filings • Electronic 5500 filings provide easily searchable data for the DOL • Avoid common red flags in your plan’s filing • Bond amount must be greater than 10% of the plan assets • Adopt a Qualified Default Investment Alternative (QDIA)

18. Required Notices • Must be delivered to plan beneficiaries 30-60 days before the beginning of the plan year • Safe Harbor Design • Qualified Default Investment Alternative (QDIA) • Required at least annually from the initial distribution in 8/12 • Participant Fee Disclosure • Did you take advantage of the DOL permitted delay in 2013?

19. Fee disclosure

20. Compliance Alert For attentive plan sponsors, those excessive payments will be indentified during the process of the 408(b)(2) disclosures…However, I am concerned that plan committees will fail to evaluate and benchmark those payments. If my fears prove to be well-founded, it will inevitably lead to litigation. -- Fred Reish, Chair of ERISA practice at Drinker, Biddle & Reath Source: Plan Sponsor Magazine September 2012

21. What is Reasonable • Not defined by DOL, ERISA or Fee Disclosure regulations • Expenses and quality should be considered

22. Plan Benchmark • DOL has provided guidance indicating that a Benchmarking process based upon an RFP process is preferred • Quantitative and Qualitative factor should be considered • Documentation of a process for plan decisions is critical

23. Improvement opportunities

24. 401(k) Plans Have Changed • Fees have come down • Your plan needs may have changed • Providers have enhanced services • Additional Participant Tools are available • New Protections are available for Plan Fiduciaries

25. 401k Essentials for 2014