If you’re a qualified plan fiduciary you either recently dealt with the Pension Protection Act plan restatement or you’re in the queue to have it done very soon. Plan restatements are generally viewed as a big pain in the patootie by pretty much everyone involved in the process. Providers have to dedicate substantial time and resources assisting their clients with compliance and plan sponsors have to shell out a bunch of dough for something that they didn’t ask for in the first place.
As advisors we find ourselves playing the role of conscience, reminding clients that the provider really has no other choice than to charge for the extra work imposed upon them by the government, all while simultaneously reminding providers they ought to be understanding of the client’s displeasure in having to deal with the “unprovoked” inconvenience.
Restatement is not unlike emissions testing for your car – it may or may not be necessary, but it is mandatory, and often expensive.
Unlike emissions testing, there are some immediate values in restatement. Once you get over the imposition of the plan restatement, it’s worth taking the occasion to reconsider your
current plan design and see if there are any opportunities for enhancement. So here are a few items to consider implementing in your plan if it doesn’t already employ these provisions:
The Roth 401(k) was first introduced in 2006 and while there was initially a sunset provision, it was quickly eliminated. This is one of those, “Unless you can give me a really good reason not to offer it, offer it” kind of things. Why wouldn’t you give your participants the opportunity to diversify the tax status of their retirement savings?
Auto enroll is becoming a more-used feature among plans of all sizes and composition because countless studies have shown that it increases savings rates. *WARNING: The devil is in the details so you have to consider all of the factors associated with implementation. Nevertheless, we are creatures of habit and once something is in place we tend to leave it alone which makes auto enroll so potentially powerful. How do you think Uncle Sam has been getting away with the payroll tax all these years?
Eligibility/Enrollment Date Acceleration
Some clients have accelerated their eligibility and enrollment provisions in an effort to get their participants engaged in the saving process sooner. It’s important to consider turnover and other factors but if you can afford to give your people an opportunity to start saving sooner, you’re simultaneously giving them an opportunity to retire sooner. Plus, the younger crowd is looking more closely at benefits when choosing an employer and excessively restrictive eligibility provisions can be a strike against you.
In-Plan Roth Conversion
Financial planners like to have as many options available to them when dealing with their clients. (Well, the good ones do anyway!) Why not make this planning tool available to your workforce? If you cannot come up with a good answer to that question it’s worth considering.
By now you’re probably thinking, wait a minute, the title of this blog said, “Five things…” and I only see four. Look closer, my friend: Eligibility/Enrollment are technically two separate items. Gotcha!
Whether your list is four, five or fifty items long, the point is, you should have a list of possibilities for enhancing your plan. Regardless of whether actually you end up making any changes to your plan design, restatement is a great chance to take stock of how your plan is working and make sure that it’s structured in a way that helps you best accomplish the goals of your workforce.
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