General Administration—

–Enrollment Packets

Participants new to the plan should receive an enrollment packet prior to when they first become eligible to participate in the plan. Enrollment is the first and perhaps most important opportunity to present participants with the mandatory disclosures required by 404(c). It is also a time you have the participant's attention and can encourage the participant to consider the valuable information provided regarding the investment options as it relates to the needs and objectives for that participant.

Enrollment packets should be well organized and include basic education material on the importance of saving for retirement, the value of starting early, the key attributes of the retirement plan offered to the employee (SPD), the basics of investing and building a portfolio, a risk assessment tool, and specific information regarding the available investment options and how elections and changes can be made. Basically, you cover your mandatory 404(c) disclosures at enrollment along with instructions on how to obtain updated and additional information.

It is important to provide ongoing access to updated mandatory disclosure information for all active participants.

–Summary Plan Descriptions

The Department of Labor regulations specify very specific content, in plain English, for a Summary Plan Description (SPD). The SPD is a summary of the major plan provisions regarding eligibility, employer and employee contribution rules, vesting, claims, distributions, ERISA rights, etc. Complying with the content regulations should not be problematic as they are generally prepared by an attorney or experienced Third Party Administrator. Difficulties associated with the SPD center around the failure to timely deliver the SPD.

The SPD must be provided to every participant at the later of, one, 90 days after the employee becomes a participation in the plan (or a beneficiary begins to receive benefits); or two, 120 days after the Plan becomes subjecting to reporting and disclosure requirements of Title I of ERISA, i.e., upon establishment of a Plan.

If a plan is amended and the amendment affects information in the SPD, then all participants and active beneficiaries must receive an updated SPD within five years plus 210 days after the end of the plan year following when the amendment was required. In any event participants and beneficiaries must receive an SPD at least every 10 years plus 210 days after the first SPD was issued.

–Qualified Joint and Survivor Annuity Notices

If a retirement plan has money sources subject to QJSA requirements (generally all money purchase pension and defined benefit contribution sources or other sources that the plan document specifies as being subject to QJSA), then proper notice must be given to both vested and non-vested participants regarding the particulars. The notice must explain the QJSA provision, the impact of waiving the provision, the rights of the spouse, and the method for making (and revoking) the election along with its impact.

The notice must be given to all participants, but only married participants who elect a beneficiary other than their spouse for more than 50% of their account must actually complete the associated forms. The required notice dates are variable and therefore cumbersome. Notice must be given in whichever time window below ends at the latest date for each participant.

1. Between the first day of the plan year in which a participant reaches age 32 and the last day of the plan year before the participant reaches age 35.
2. Between one year before and one year after the employee becomes a participant.
3. Between one year before and one year after the survivor benefit applicable to the participant is no longer subsidized by the plan.
4. Between one year before and one year after the survivor benefit requirements become applicable to the participant.

For a participant separating from service prior to their 35th birthday the period between one year before and one year after separation from service.

Recent changes in IRS regulations allow plans to eliminate certain forms of distribution, including a QJSA, but only in the instance where the QJSA was not an IRS-mandated distribution option, i.e., for a Money Purchase or Target Benefit Plan. However, a QJSA cannot be eliminated for certain sources of contributions.

–Annual Statements

There are two different annual statements to distribute to Plan participants. One, the Summary Annual Report (SAR), provides information about the Plan total investments; the other provides an understanding of the participant's accrued benefit.

The SAR is not the participant's quarterly or annual investment statement of account. The SAR is a plain English statement of the information contained in the annual IRS Form 5500 and Schedules. The SAR must provide the value of the plan assets on the first and last day of the plan year, the plan expenses incurred for the plan year, and information regarding any insurance contracts held by the plan. Additionally, the SAR must notify participants that they can examine, at any time during reasonable hours, the actual annual report (Form 5500 and accompanying information), the accountant's report if any, and a list of plan transactions which involve at least 5% of plan assets or involve any "interested parties". The SAR is completed at approximately the same time as the IRS Form 5500 and should be provided to participants at that time, but no later than the due date for the IRS Form 5500 (7.5 months after the end of the plan year or 10 months if properly extended).

Participants must also receive at least annually a statement of their account including a statement of their non-forfeitable (vested) benefit or account balance.
Plan sponsors that routinely provide quarterly participant statements generally include the vested account balance on the quarterly statement to satisfy this requirement.
Plan sponsors must also provide this statement within 30 days of a participant's request, but no more than once every 12 months.

–Distribution Notices

There are a variety of distribution events that can occur including termination of the participant, in-service withdrawal, death, disability, retirement, and required minimum distributions after retirement. Depending on the event, a different notice and/or form is required.

The notice timeline requirements are generally characterized as "within a reasonable" period of time around or before the occurrence of the event. This is usually considered to be 30 to 90 days, although the participant can generally waive the minimum 30 day requirement upon early receipt of the notice. Plan sponsors should adopt routine procedures to provide these notices and forms at or near the occurrence of the events to assure that they meet the reasonableness test and do not fail to provide the notices and forms.

Plan sponsors are required to provide proper notice of "eligible rollover options" and an explanation of the tax withholding rules for distribution within a reasonable time frame for terminating participants. This notice is known as a Section 402(f) notice (referring to IRS Code Section 402(f)) and the IRS has provided a "safe-harbor" explanation of what must be included in the notice (Temp Reg paragraph 1.402(c)-2T, Q&A 11(b); IRS notice 92-48, 1992-2 CB 377).

Frequently, an ex-Employee will initiate a request for a distribution from his account by sending to the Plan a Transfer Form provided by a brokerage company or fund company. Plan administrators should not act upon these transfer requests.
An administrator should recognize the submission of the transfer form for what it is: a request for the distribution. The administrator should send to the Participant the Plan's required notices and forms to both insure and document the Plan's adherence to notice requirements.