A 401(k) Year End ‘To Do’ List

401k, retirement, best practices
Seriously, already?

Preparing for colder weather—inspecting chimneys, draining outdoor faucets, cleaning gutters and other tasks—isn’t always enjoyable, but knowing the work has been done confers a sense of well-being. You know you’re ready for whatever may be ahead.

The same is true for retirement plans. Checking the items off a year-end to-do list, including reviewing plan provisions and completing key tasks, offers assurance that fiduciary responsibilities have been met and plans are ready for whatever may be ahead, even if it’s a Department of Labor or Internal Revenue Service audit.

As you finish out 2019 and prepare for 2020, here are some items that plan sponsors may want to have on their to-do lists:

Perform a search for missing participants

Missing participants can drain plan resources, impair plan administration and expose plan sponsors to unnecessary fiduciary risk. As a result, it is crucial to develop disciplined processes for identifying and locating missing participants and then conduct searches at least once a year.

If you do not have a systematic process for locating missing participants, it’s time to put one in place. The DOL has not issued guidance for active plans; however, much has been written about best practices for missing participant searches.

Plan sponsors that rely on third-party administrators (TPAs) or recordkeepers should be certain they understand the process used to identify and locate missing participants, as well as the timing of searches.

In addition, confirm when distributions are made to missing participants. The practices employed should align with those described in plan documents.

Plan review tip: Because missing participant issues are a current focus for Department of Labor (DOL) and Internal Revenue Service audits, it’s wise to review the process and make sure it is being followed to the letter (By the way, the very best way to avoid having missing participants is to implement a procedure for maintaining accurate participant data).

Complete automatic rollovers of eligible accounts

Many plan provisions require automatic rollovers for accounts with balances of $1,000 to $5,000. Make certain all eligible accounts have been automatically rolled over to your IRA provider and confirm the process observed the rules established in your plan documents.

Since 2005, when the DOL published Automatic Rollover Safe Harbor Regulations, Rollover IRAs have helped plan sponsors remove missing participants from retirement plans while preserving the tax-deferred status of their retirement savings.

Rollover IRA providers typically search for the owners of Rollover IRAs to reunite them with their savings.

Plan review tip: Plans at companies with high turnover and/or automatic enrollment may want to complete IRA rollovers quarterly to maintain clean plan data.

Roll uncashed distribution checks into IRAs

 Many defined contribution plans issue checks when terminated employees’ plan account balances are less than $1,000. A recent The SPARK Institute survey reported that ten member firms issued about four million checks in 2017, and about 4.5% – more than 185,000 checks – went uncashed.

The management of uncashed check balances has become a major issue for many retirement plans. If your plan does not have a documented process for uncashed check management, developing and implementing one should be a priority.

In June, the ERISA Industry Committee requested that the DOL provide clear and consistent guidance to help plan sponsors understand how to meet fiduciary obligations with respect to uncashed checks. Until then, The SPARK Institute reported its members typically return assets to a participant’s account, send assets to the plan’s forfeiture account or roll assets into an IRA.

Plans that rely on TPAs or recordkeepers to manage uncashed checks should familiarize themselves with the process employed by their service providers.

Plan review tip: If uncashed checks are piling up, adopting an automatic rollover provision for all accounts with balances below $5,000 can help minimize the number of uncashed checks issued.

Whether your plan is big or small, it’s important to make sure it is in compliance; and year-end can be a good time to do this. Year-end reviews can include internal audits to ensure plan processes are consistent with plan provisions.

For example, if a plan document indicates automatic rollovers will occur quarterly to ensure plan data is clean and accurate, and rollovers were made just once last year, then processes need to be realigned with plan provisions.

In the best case, an annual review will confirm plan documents are up-to-date, reflect current law and have provisions that help plans run smoothly and efficiently. More often, a year-end review will identify issues that need to be corrected and highlight opportunities to potentially reduce fiduciary liability.

Terry Dunne
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Before retirement, Terry Dunne was the senior vice president and managing director of Retirement Services at Millennium Trust Company, LLC. Mr. Dunne has over 40 years of consulting experience in the financial services industry. He has written extensively on retirement planning, industry trends, technology, and legislation. Millennium Trust performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.

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