Annuitization of 401(k)s: DOL Safe Harbor Addresses Fiduciary Concerns

Employee Benefit Adviser:

By Jerry Kalish

June 24, 2013

This is another of my continuing articles on 401(k) In-Plan lifetime income products.

• The Next Big Thing for 401(k) Plans?
• Understanding Sponsors’ Concerns about In-401(k) In-Plan Life-Time Income Products

But let’s ditch the productization label, and refer to what’s happening with lifetime income concerns as the “annuitization of 401(k) plans.”

Here’s one of the basic concerns employers have with 401(k) annuities – fiduciary responsibility for the selection of an annuity provider or contract for benefit distributions.

The seal of the United States Department of Labor (Photo credit: Wikipedia)

Fortunately, the Department of Labor finalized its Regulation On Selection Of Annuity Providers--Safe Harbor For Individual Account Plans. In brief, the DOL says that a fiduciary can satisfy its responsibilities by:

1. Engaging in an objective, thorough and analytical search for the purpose of identifying and selecting providers from which to purchase annuities;
2. Appropriately considering information sufficient to assess the ability of the annuity provider to make all future payments under the annuity contract;
3. Appropriately considering the cost (including fees and commissions) of the annuity contract in relation to the benefits and administrative services to be provided under such contract;
4. Appropriately concluding that, at the time of the selection, the annuity provider is financially able to make all future payments under the annuity contract and the cost of the annuity contract is reasonable in relation to the benefits and services to be provided under the contract; and



The seal of the United States Department of Labor (Photo credit: Wikipedia)

5. If necessary, consulting with an appropriate expert or experts for purposes of compliance with the provisions of this process.

But remember, the so-called “Safe Harbor” does not by itself protect a fiduciary from its responsibility for selecting an annuity provider or contract. A Safe Harbor, in general, only reduces or eliminates a party’s liability if the party performed its actions in good faith or in compliance with defined standards.

So from a practical standpoint: a Prudent Fiduciary should consider hiring a Prudent Expert.

Jerry Kalish is President of National Benefit Services, Inc., a Chicago-based TPA firm. He has been publishing the firm’s Retirement Plan Blog since 2006. He can be reached at jerry@nationalbenefit.com.

This article is for information purposes and should not be considered tax or legal advice. Plan sponsors and participants should consult with qualified tax and legal advisors for the application of the law and regulations to their specific situations.

'via Blog this'

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New proposed regulations could mean changes for employee retirement plans

Employee Benefit News:

By Sally Doubet King & Carolyn M. Trenda

April 23, 2012

Seal of the United States Department of the Treasury (Photo credit: Wikipedia)

... For several months, the Department of the Treasury, the Internal Revenue Service and the Department of Labor have been exploring ways to provide “income-stream” options for more retirement plan participants. The agencies have focused on finding a balance between lump-sum cash distributions (which provide liquidity) and lifetime-income options.

This past February, the Treasury and the IRS released two proposed regulations, and the IRS issued two revenue rulings, that provide different strategies for achieving such a balance. Here, we go over two:

Logo of the Internal Revenue Service (Photo credit: Wikipedia)

- A longevity annuity option, providing an annuity that begins at an advanced age under a defined contribution plan.

- A deferred annuity option from a defined contribution plan.

Longevity annuity option under defined contribution plan

To address the concern that retirees may outlive their savings, especially where the only retirement plan distribution received by the retiree is a lump sum from a defined contribution plan, the guidance package includes a proposed regulation that introduces a new concept, the “qualified longevity annuity contract." Such a contract would provide a stream of income commencing at an advanced age, such as 80 or 85, and would continue as long as the individual lives. ...

Under the proposed regulation, if a plan offered a QLAC, the QLAC would be disregarded in determining RMDs. Therefore, a participant would not need to commence distributions from the QLAC before the age selected under the QLAC contract.

Also under the proposed regulation, a QLAC would be an annuity contract purchased from an insurance company for a plan participant that satisfies each of the following requirements:

- Premiums for the contract satisfy a specific dollar limitation and percentage of assets limitation, i.e., the lesser of $100,000... or 25% of the account balance.

The contract provides that distributions must commence not later than a specified annuity starting date, and that annuity starting date cannot be later than the first day of the month coincident with or next following the participant’s attainment of age 85. ...

The contract does not make available any commutation benefit, cash surrender right or other similar feature.

There are no benefits provided under the contract after the death of the employee, other than a life annuity payable to a designated beneficiary.

The contract, when issued, states that it is intended to be a QLAC.

Additionally, issuers of QLACs are subject to certain reporting and disclosure requirements.

QLACs could also be provided under 403(b) plans and traditional IRAs, but not under 457(b) plans, defined benefit plans or Roth IRAs.

Note: Similar to the proposed regulation on partial annuity distributions, the new guidance on QLACs would be effective for contracts purchased after the publication date of a final regulation; in the interim, plans cannot rely on the proposed regulation.

Deferred annuities from defined contribution plans

The final piece of guidance is Revenue Ruling 2012-3. This ruling describes how the qualified joint-and-survivor annuity (QJSA) and qualified pre-retirement survivor annuity (QPSA) requirements in Code Sections 401(a)(11) and 417 apply when a deferred annuity contract is purchased under a defined contribution plan.

The ruling provides three examples that illustrate different deferred annuity design alternatives, each with different conditions: a revocable annuity, a fixed annuity and a fixed annuity with an election not to pay amounts attributable to matching contributions under the annuity contract in the event the participant dies prior to the annuity starting date. The ruling then provides an analysis of how each alternative would necessitate certain plan terms, including compliance with QJSA and QPSA notice, waiver and consent requirements.

The ruling clarifies that where the plan separately accounts for the deferred annuity contract, the remainder of the plan is not subject to the QJSA and QPSA requirements.

Future considerations

Employers may wish to provide comments to the Treasury on either or both of the proposed regulations; these comments must be provided by May 3, 2012. In addition, plan sponsors interested in the new options should evaluate how the options could be integrated into current plan design and communicated to participants.

For more information, contact Partner Sally Doubet King at            (312) 849-3684 begin_of_the_skype_highlighting            (312) 849-3684      end_of_the_skype_highlighting       or sking@mcguirewoods.com and Associate Carolyn M. Trenda at             (312) 849-8130 begin_of_the_skype_highlighting            (312) 849-8130      end_of_the_skype_highlighting       or ctrenda@mcguirewoods.com at the law offices of McGuireWoodds LLP.

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Time to update ERISA fiduciary rule--OPINION

Currently, some advice, however conflicted, is seldom actionable

Pensions & Investments
By Phyllis C. Borzi
April 18, 2011, 12:01 AM ET

Image via WikipediaPension plans and participants routinely depend on experts for guidance in making important investment decisions. They turn to these investment professionals for reliable advice on how best to manage and safeguard retirement assets. Most would assume that these experts give their advice as fiduciaries, obligated to act with prudence and undivided loyalty to the plans' financial interests, rather than in their own interests — and that's exactly what the Employee Retirement Income Security Act of 1974 provides. However, a regulation issued in 1975 by the Department of Labor substantially narrowed the statutory fiduciary definition, making it far too easy for today's advisers to avoid fiduciary responsibility. We are now working to update this rule.

John Dean
Phyllis C. Borzi is assistant secretary of labor for the Employee Benefits Security Administration, Washington

So much has changed over the last three decades and the concepts and interpretations developed long ago often need to evolve or they risk becoming irrelevant. … The department's plan to update its 36-year old fiduciary regulation is necessary to ensure its relevance in today's environment of participant-directed investments.

… ERISA provides that a retirement plan fiduciary must act with prudence and undivided loyalty to the participants in that plan. Among other things, the law says that anyone providing investment advice for a fee, either direct or indirect, is a fiduciary. The department's 1975 rule restricted this definition by creating a five-part test for the definition to be met. At the time, … 401(k) plans didn't exist and individual retirement accounts were just starting up. Now the majority of retirement plan assets are in 401(k) plans where participants shoulder most of the investment responsibility, regardless of their financial sophistication. Additionally, IRA assets now exceed those in 401(k) plans. As a result, good investment advice is in greater demand, both by participants and by the plan sponsors who select plan investments.

Among the key elements of the five-part test was the requirement that the advice had to be given on a regular basis and that it had to be given pursuant to a mutual understanding that the advice would be the primary basis for the investment decision. This means that advice given infrequently, however flawed or conflicted, is seldom actionable by the department. … Moreover, unless both the plan official and the adviser understand that the advice serves as a primary basis for the investment decision, advisers who base their advice on their own financial interests rather than the plan's can't be held accountable under ERISA for the resulting losses.
Consequently, plan sponsors and participants are often left holding the bag for damages caused by conflicted advice, even in cases where the adviser might have represented that the advice was covered under ERISA. Plan officials who relied on that advice, as a result, are often the sole targets of legal actions that may follow.

… Plan sponsors hire their advisers with the expectation that the advice will be free of conflicts of interest and that these advisers will be held to the same legal standard of care that any fiduciary would.
To fix this problem, we have proposed a new rule that more closely reflects Congress' decision in 1974 as to when investment advisers are “fiduciaries” to the plans they serve. The new rule would remove the “regular basis” and “primary basis” requirements to give added protection to both employees who participate in retirement plans and to the businesses that offer them. ...

Image via WikipediaIn developing this rule, we are working collaboratively with the Securities and Exchange Commission and the Commodities Futures Trade Commission to harmonize our respective regulatory activities. We want to ensure that compliance with one regulatory regime does not create violations of the other. … We also have broad authority to issue exemptions from ERISA's prohibited transaction rules, so we can make sure that beneficial advice practices are permitted, even if they would otherwise be technical violations of the statute. While we recognize that most advisers act in good faith, the new rule would permit us better to protect plans from abusive practices and to address them when they occur. We will, however, continue to evaluate the scope, terms, conditions and exceptions in the proposed rule to ensure that the final regulation is as clear and effective as possible, and to make sure that we avoid any unintended consequences.

Our actions will benefit America's businesses and their employees nationwide. The proposed rule would hold financial professionals who present themselves as expert purveyors of investment advice more accountable for that advice, allowing plan sponsors to be secure in the knowledge that outside advisers are giving them the best possible guidance. Shouldn't advisers who provide such crucial advice be held to the same standard of care as those who are paying them for it?

Phyllis C. Borzi is assistant secretary of labor for the Employee Benefits Security Administration, Washington.

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Self-Insured Numbers Higher Than Expected, and Growing

A new report reveals that the federal government was underestimating the number of employers that self-fund employee health benefits. Now, with healthcare reform, their numbers are set to grow.

Risk & Insurance Online
By JULIE LIEDMAN, a freelance writer who lives in Philadelphia

Image via WikipediaOn March 23, the one-year anniversary of the Patient Protection and Affordable Care Act (PPACA), the U.S. Department of Labor issued its first annual report on self-insured employee health benefits plans, mandated by the legislation. …

According to the DOL report, about 12,000 health plans filing a Form 5500 for 2008--the latest year for which complete data is are available--were self-insured, and 5,000 mixed self-insurance with insurance. Self-insured plans covered 22 million people, while mixed plans covered 25 million. Health benefits plans covering private-sector employees must file the form if they cover 100 or more participants or hold assets in trust. Because many self-insured health plans do not meet the filing requirements and therefore haven't filed the form, however, the total number of self-insured plans probably is underestimated. The DOL report acknowledged this,  …
"We expect a larger interest in self-insurance than ever before when additional regulations such as exchanges, 'pay-or-play' and vouchers go into effect (by 2014)," said Mike Ferguson, chief operating officer of the Self-Insurance Institute of America.
By 2014, PPACA requires that health insurance be more affordable and easier to purchase for small businesses and individuals through statewide exchanges. Employers with 50 or more full-time employees must either provide specified minimum levels of coverage to their employees or pay an excise tax. This is referred to as "pay or play."…
Smaller employers may find it financially advantageous to pay for their own firm's risk than to be subject to the new provisions.

Image via WikipediaPurchasing a plan through the exchange, for instance, where premiums will be a function of the broader risk pool and subject to risk adjustment, could be costly, Ferguson said. If enough small firms with healthier enrollees opt out of a state's small-group market in 2014, that state exchange could experience adverse selection.

"Based on anecdotal feedback we've gotten from our members," said Ferguson, "they've digested the regulations currently in place, adapted to any new requirements and life goes on."
April 12, 2011
Copyright 2011© LRP Publications

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DoL Broadens Fiduciary Net

Image via WikipediaOctober 21, 2010 (PLANSPONSOR.com) – For the first time in a generation, the Labor Department has taken another crack at the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA).

The proposed rule was unveiled today by the Department of Labor (DoL), which noted that its adoption “would protect beneficiaries of pension plans and individual retirement accounts by more broadly defining the circumstances under which a person is considered to be a ‘fiduciary’ by reason of giving investment advice to an employee benefit plan or a plan’s participants.”
The proposed rule is designed to “take account of significant changes” in both the financial industry and what was described as “the expectations of plan officials and participants who receive investment advice,” as well as to protect participants from “conflicts of interest and self-dealing.”

Testing, Tested

Image via WikipediaIn explaining the proposal, the Labor Department noted that while Section 3(21)(A) of ERISA provided a “simple two-part test for determining fiduciary status,” a subsequent (1975) regulation served to “significantly narrow” the “plain language” of the legislation; effectively replacing the two-part test that would impose fiduciary status when a person renders investment advice with respect to any moneys or other property of a plan, or has any authority or responsibility to do so and receives payment (direct or indirect) for that advice, with a 5-part test that included conditions that: the advice regarding plan investments be rendered “on a regular basis,” that the advice would serve as a primary basis for investment decisions with respect to plan assets, that the recommendations are individualized for the plan, that the party making the recommendations receives a fee for such advice, and that it be pursuant to a mutual understanding of the parties. Moreover, the Labor Department noted that it further limited the definition of “investment advice” in a 1976 advisory opinion, when it concluded that the valuation of closely-held employer securities in an employee stock ownership plan (ESOP) relied on in purchasing those securities would not constitute investment advice.

…[The] Labor Department noted that the financial marketplace and the types and complexity of services have expanded dramatically. The proposal notes that although professionals such as consultants, advisers, and appraisers “…significantly influence the decisions of plan fiduciaries, and have a considerable impact on plan investments,” if they are not deemed fiduciaries under ERISA “…they may operate with conflicts of interest that they need not disclose to the plan fiduciaries who expect impartiality and often must rely on their expertise, and have limited liability under ERISA for the advice they provide.”
In essence, the Labor Department now says that ERISA does not compel it to apply its own five-part test, and that new facts and circumstances mean it is now time to update the investment advice definition. Specifically cited is that the proposal no longer requires that the advice be provided on a “regular” basis, not does it require that there be a mutual understanding that the advice will serve as a primary basis for plan investment decisions. [emphasis added']
Advice Description
As for what constitutes advice, the proposal now includes the provision of appraisals and fairness opinions as a type of advice [emphasis added], noting that the incorrect valuation of employer securities was a “common problem” identified in the DoL’s recent national enforcement project, including cases where plan fiduciaries have “reasonably relied on faulty valuations prepared by professional appraisers.” The proposal also makes specific reference to advice and recommendations as to the management of securities and other property, including such things as voting proxies or recommendations regarding the selection of persons to manage plan investments.
Finally, in what was described as reflecting “the Department’s longstanding interpretation of the current regulation,” the proposal makes clear that fiduciary status “may result from the provision of advice or recommendations not only to a plan fiduciary, but also to a plan participant or beneficiary.” [emphasis added]

Distribution Advice
The proposal notes that while the DoL has previously taken the position that a recommendation to a plan participant to take a permissible plan distribution would not constitute investment advice, even when combined with a recommendation as to how the distribution should be invested, “[c]oncerns have been expressed that, as a result of this position, plan participants may not be adequately protected from advisers who provide distribution recommendations that subordinate participants’ interests to the advisers’ own interests.” As a result, the Labor Department is now seeking comment “on whether and to what extent the final regulation should define the provision of investment advice to encompass recommendations related to taking a plan distribution.” [emphasis added] The proposal notes that the agency is specifically interested in:

• information on other laws that apply to the provision of these types of recommendations,
• whether and how those laws safeguard the interests of plan participants,
• the costs and benefits associated with extending the regulation to these types of recommendations.

The proposal says that the definition of advice does not include “the preparation of a general report or statement that merely reflects the value of an investment of a plan or a participant or beneficiary, provided for purposes of compliance with the reporting and disclosure requirements,…unless such report involves assets for which there is not a generally recognized market and serves as a basis on which a plan may make distributions to plan participants and beneficiaries.” [emphasis added]
Other Points
The proposal says that the DoL believes that explicitly claiming ERISA fiduciary status, orally or in writing, is sufficient to result in fiduciary status, if provided for a fee (in that it “enhances the adviser’s influence, and gives the advice recipient a reasonable expectation that the advice will be impartial and prudent”).
Consistent with existing regulations, the proposal acknowledges that the provision of investment education materials (plan information, general financial and investment information, asset allocation models, and interactive materials) would not be deemed advice.
The proposal notes that the “marketing or making available” investments or an investment menu (e.g., through a platform or similar mechanism) “without regard to the individualized needs of the plan, its participants, or beneficiaries…will not, by itself, be treated as the rendering of investment advice within the meaning of section 3(21)(A)(ii) of ERISA”—if the person making those investments available “discloses in writing to the plan fiduciary that the person is not undertaking to provide impartial investment advice.” Additionally, the provision of information and data to assist a plan fiduciary’s selection or monitoring of investments isn’t deemed to be rendering advice “if the person providing such information or data discloses in writing to the plan fiduciary that the person is not undertaking to provide impartial investment advice.”
The proposal does set aside some limitations, exempting from the fiduciary umbrella persons that can demonstrate that the advice recipient “knows or, under the circumstances, reasonably should know, that the person is providing the advice or making the recommendation in its capacity as a purchaser or seller of a security or other property, or as an agent of, or appraiser for, such a purchaser or seller, whose interests are adverse to the interests of the plan or its participants or beneficiaries, and that the person is not undertaking to provide impartial investment advice.” [emphasis added]
Finally, noting that a necessary element of fiduciary status is that the advice be rendered for a fee or other compensation, the proposal states that that includes, but is not limited to, “brokerage, mutual fund sales, and insurance sales commissions,” [emphasis added] and that it includes fees and commissions based on multiple transactions involving different parties.
Effective Dates
The proposal is set to take effect 180 days after publication in the Federal Register tomorrow, but the Labor Department is first seeking comments on the proposal. The comment period for the proposed regulations will end 90 days after publication of the proposed rule in the Federal Register. That means that the comment period will end January 20, 2011. Comments can be submitted electronically by e-mail to e-ORI@dol.gov (enter into subject line: Definition of Fiduciary Proposed Rule) or by using the Federal eRulemaking portal at http://www.regulations.gov/.

The DoL notes that persons submitting comments electronically are encouraged not to submit paper copies. More information on paper submissions is available (along with the proposal itself) at http://www.ofr.gov/OFRUpload/OFRData/2010-26236_PI.pdf

Judy Ward
editors@plansponsor.com

Annuities could get boost from small business legislation

Employee Benefit News

By Donna Mitchell
September 29, 2010
The battered annuity industry seemed to have found a powerful ally in President Obama’s administration, when the Middle Class Task Force issued a report in January saying the executive branch would work to promote the availability of annuities and other forms of guaranteed income.

Image via WikipediaPart of that promise was fulfilled Monday, after President Obama signed the Small Business Jobs Act into law.

The legislation includes a provision that allows holders of non-qualified annuities to carve out some of the funds from a deferred annuity and buy an immediate annuity contract with those proceeds.
The original deferred annuity will continue to grow and accumulate tax-deferred income. Designated as an offset, it is designed to promote retirement preparedness. …
Small employers
Because of their size, some small business owners are not able to directly offer qualified retirement savings plans. For employees of these companies who happen to own a deferred annuity contract, the new law gives them greater flexibility to save outside of the workplace toward a secure retirement, according to Cathy Weatherford, president and chief executive officer of the Insured Retirement Institute, based in the nation’s capital.
Currently, if an individual wants to pull a portion of money out of his or her single guaranteed annuity and buy a separate contract, that investor would have to cancel the original contract and buy two separate annuities. They would incur a surrender charge beginning at 5% of the invested amount, at least, and ranging to 7% and up, Weatherford explains.
"This is a giant step forward that will allow Americans to have annuities … as they build out their retirement savings strategies going forward," Weatherford says. "It will save money on fees for exchanges or those types of things. It is a way for people to get one more option to continue to grow next egg at time when might need guaranteed lifetime income."
There could be more to come from the current administration, in terms of supporting the annuity industry. In February, the Departments of Labor and Treasury requested information for how to encourage 401(k) plans to offer annuities to their participants, which has gotten many responses from insurance companies and trade groups.

---

Donna Mitchell is a senior editor at Financial Planning, a SourceMedia publication.

Retirement Plans: Former Employees Can Be Current Problems

SHRM

7/15/2010 
By Mark Sweatman, Keane Retirement Services 
There comes a time when employees leave the company for greener pastures or retirement. … Unfortunately, many companies don’t understand the full impact former employees can have on their retirement plan.

For example, most plan sponsors adopt procedures for locating former employees or beneficiaries who have not cashed out of the 401(k) or other defined contribution plan. What happens, however, when a plan sponsor is not able to track down a missing participant? …

Missing Participants and Unclaimed Property
If ex-employees leave contributed and vested funds of less than $5,000 in their former employer's 401(k) or other tax-qualified defined contribution plan, these funds are subject to automatic rollover into an individual retirement account (IRA) in the participant's name (see “Satisfying the 401(k) Rollover Safe Harbor”).

Participants with account balances above $5,000 who are no longer active employees become a continuing cost, …. Plan sponsors are obligated to maintain communication with ex-employee participants but run the risk of becoming disconnected, making it difficult to meet fiduciary obligations. In addition, it puts the organization at risk for problems with unclaimed property reporting.

Many abandoned property laws include dormancy periods for unclaimed amounts in tax-deferred retirement plans. Generally, the state of last known address of the missing participant is the one that benefits in an unclaimed property situation. …

The problem gets worse when a former employee dies. Death is a distributable event in a defined contribution plan. … But, if the plan sponsor doesn’t know that the former employee has died, it can’t initiate the distribution and might find itself in the awkward position of having to explain why the former participants’ account balances declined between the time their beneficiaries were due a distribution and the time they received it.

The ERISA Factor
This is where the Employee Retirement Income Security Act (ERISA) comes in. ERISA requires that plans provide the following:

• Information about the plan, including important information about plan features and funding.
• Minimum standards for participation, vesting, accrual of benefits and funding of plans.
• Length of time a person may be required to work before the person becomes eligible to participate in a plan, to accumulate benefits and to have a non-forfeitable (i.e. “vested”) right to receive those benefits.

While the Internal Revenue Code generally prohibits the forfeiture of vested retirement benefits, a special provision allows the forfeiture of retirement benefits for missing participants, provided the benefit is reinstated if the participant is ever located. Furthermore, to protect ERISA plan administrators from having to comply with various state unclaimed property laws, ERISA supersedes state laws that relate to any employee benefit plan it governs.

Though ERISA is meant to help plan administrators and sponsors—and has alleviated many potential headaches around unclaimed property—plan sponsors and administrators still face the challenge of maintaining accurate data and keeping track of former employees.

Take for instance the 2008 U.S. Supreme Court ruling in LaRue v. DeWolff, Boberg & Associates. … It clears the way for individual participants in other plans to sue when they believe that fiduciaries are acting improperly.

Terminated Plans

To help plan sponsors and administrators terminate defined contribution plans smoothly, the U.S. Department of Labor (DOL) provides guidelines. … If a plan fiduciary is unable to reach plan participants, … any ERISA fiduciary must follow the following search methods:

• Reach out to participants via certified mail.
• Review related plan records.
• Make inquiries to designated plan beneficiaries.
• Employ the IRS letter-forwarding service.

Image via WikipediaAfter all search methods have been exhausted, the DOL acknowledges that plan fiduciaries must still distribute benefits in order to terminate plans. Employers with terminating plans should then consider rollovers into IRAs or transfers into federally insured bank accounts.

As with ex-employee accounts of under $5,000, the preferred distribution treatment for accounts of any size left in a terminating plan is rollover into IRAs. This technique is preferred because it preserves the benefit value by transferring the entire account balance and defers the consequences of income tax to the participant.

Although endorsed by the DOL, IRA rollovers still raise some issues. Choosing an IRA plan and a plan custodian/trustee is a fiduciary decision. As a result, it might be difficult to locate IRA providers that will accept missing participant rollovers.

Plan fiduciaries can consider establishing an interest-bearing, federally insured bank account in the missing participant’s name. However, this option isn’t without issue either. Rolling a benefit plan into a bank account has tax consequences for the participant and presents great potential for unclaimed property consequences. If the participant never learns about the rollover or the account and three to five years (depending on the state’s dormancy period) of inactivity have passed, the state of last known address for the participant can claim the funds if that state has inactivity provisions.

Don't Lose Touch
While there is no one-size-fits-all approach for plan sponsors and administrators, one thing is certain: Employee data needs to be analyzed on an annual basis and scrubbed for errors and outdated information. Create an internal system for assessing data quality to help cut down on the number of missing participants remaining in your retirement plans. In addition, when employees are leaving the company, provide them with instructions on how to roll over their benefit funds into an IRA or a new employer’s plan.

By staying on top of data quality and the whereabouts of former employees, you can control costs better, stay in compliance and fulfill obligations to keep participants abreast of pertinent plan information.

Mark Sweatman is president of Keane Retirement Services, a division of The Keane Organization, a provider of compliance and risk management solutions to Fortune 1000 corporations.
Related Articles:
Retirement Plan Sponsors Should Keep Track of Former Employees, SHRM Online Benefits Discipline, February 2009
Satisfying the 401(k) Rollover Safe Harbor, SHRM Online Benefits Discipline, October 2004
Quick Link:
SHRM Online Benefits Discipline

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