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The Responsibilities of a Retirement Plan Sponsor

Retirement can be a scary prospect to many of us, regardless of how close or far off it is, as it marks a time in our lives where we will be forced to live off a much lower income. As a business owner, you have the opportunity to ensure that your staff are on the best possible workplace retirement plan. Not only will this alleviate concerns they may have about their future, but can also benefit you know through increased focus during work hours.
Providing a workplace retirement plan is a fantastic first step, but beyond that many business owners aren’t aware of their specific responsibilities. Every business owner should be working alongside their Human Resources department, and in some cases their accountants, to ensure that all responsibilities are being met. Whether you’re looking at setting up a workplace retirement plan for your staff, or changing their plan, considering the responsibilities is an important first step.
Here is an overview of the responsibilities of a retirement plan sponsor.
Keeping in Compliance
As the employer, it is your responsibility to keep the retirement plan you offer your staff in compliance. There are three aspects which can ensure this:
  • Make sure your plan document is written to comply with all requirements in the Internal Revenue Code - which can be read here
  • Your plan must be administered to follow its terms in operation - this often involves hiring an administrator
  • The plan needs to be reviewed annually to ensure it’s operating in accordance with it’s terms, as well as the law - read the details of what needs to be checked here
Adoption Agreement
When buying a pre-approved plan, you may have an adoption agreement, which is a supplement to the basic plan document. It lists plan features from which you can choose, and subsequently becomes a part of your plan. Be sure to know what your adoption agreement says about the following:
  • How your (employer) contributions are divided among participants
  • The types and amounts of permissible plan contributions
  • When and how the benefits are paid out
  • When participants are vested
  • When your employees are eligible to participate in the plan
Administrative Tasks
It’s important to know exactly what your service agreement does and doesn’t cover. All plans require certain administrative tasks, it’s important to know who is going to do these and that they have the information required. They may need to:
  • Apply the plan’s terms for participation, contributions and distributions
  • Correct the plan (if it has become non-compliant) and pay any fees required
  • Determine whether testing is required, and if it is to run it timely
  • File all required forms and documents with the IRS or Department of Labor
  • Give the required plan notices to all participants
  • Learn about all fiduciary responsibilities
  • Maintain records for all participant accounts
  • Review the plan document for law changes and update as necessary
Often employers will hire an outside administrator who is well versed in all relevant laws related to retirement plans.
Communicating with Plan Providers and Payroll Department
Pre-approved plans take a lot of the hard work out of organizing retirement plans, but the work doesn’t simply stop once the plan is adopted. Be sure to keep in communication with them, and to:
  • Enquire about any fees you may be charged by the pre-approved plan provider
  • Keep the opinion or advisory letter issued by the IRS for you pre-approved plan
  • Sign any plan amendments the provider sends you, as well as sending copies of plan amendments to your plan administrator
You should also inform your provider if you make any changes to your business, employees, or their compensation, or if you need to make changes to your plan’s terms.
You will also need to keep in contact with both providers and the payroll department about:
  • Newly hired staff, re-hires, terminations, and compensation changes
  • Accurate payroll compensation amounts of each participant
  • Census data for determining plan eligibility and any benefit payments
  • Plan terms for defining employee contributions, as well as plan payments and loans
Also, any plan amendments, for example, if any of the following change:
  • Contribution or allocation formulas
  • Definition of compensation
  • Hardship withdrawal provisions
  • Loan provisions
Plan Upkeep
Keeping up with all plan maintenance responsibilities will ensure that plans continue to run smoothly, as well as making sure your business remains qualified for tax benefits. Be sure to:
Review reports from your service provider
  • Check the allocation report for possible contribution errors
  • Check the distribution report to ensure participants have started their distributions and consented to the payments
You will also need to regularly review your plan’s terms to ensure you are abiding by them. It can also help to get an independent review of your plan, as they will have “fresh eyes” that may see a mistake that otherwise may’ve been overlooked.
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