As a plan administrator, you play a vital role in managing a Defined Contribution Plan, you play a crucial role in keeping retirement plans, benefit programs, and pension systems running smoothly. Your responsibilities include overseeing compliance, financial management, and participant engagement to keep the plan operating efficiently. This involves verifying accurate contribution processing, maintaining fee transparency, and providing participants with essential educational resources.
Accurate record-keeping is critical, as proper documentation simplifies reporting and ensures timely filings—helping you avoid costly penalties for late or incomplete submissions.
Defined Contribution Plan Annual Recordkeeping Requirements
Each year, the following records must be maintained:
- A list of current employees and participants, including:
- Date of birth
- Date of original hire
- Marital status
- Hours worked by each employee
- Each employee’s compensation
- Dates of termination and rehire
- Records of the plan’s investment activities
Your third-party administrator (TPA) typically conducts an annual plan review and provides a valuation report. These reviews ensure that the Defined Contribution Plan remains effective, compliant, and aligned with participants’ long-term retirement goals.
To keep your plan running smoothly and compliant, focus on these key areas during your annual review:
Defined Contribution Plan Levels
- Employer and Employee Contributions: Verify that all contributions match payroll reports, align with the plan document, and are remitted timely and accurately.
- Government Limits: Ensure contributions comply with IRS limits, including annual caps and tax-advantage rules.
- Automatic Escalation: If the plan includes automatic contribution increases, confirm that they have been correctly applied.
Plan Costs and Fees
- Administrative Fees: Review all costs, including administrative and investment management fees, to ensure they remain reasonable compared to industry standards.
- Fee Transparency: Clearly communicate all fees to participants, as high costs can erode investment returns over time.
Plan Design and Features
- Contribution Options: Assess whether pre-tax and Roth deferrals, employer contributions, and other plan features remain beneficial.
- Withdrawal and Distribution Rules: Ensure the Defined Contribution Plan’s distribution options align with participant needs.
Regulatory Compliance
- Legal and Regulatory Updates: Stay informed of changes in pension laws, contribution limits, retirement age rules, tax treatment, and reporting requirements.
- Fiduciary Responsibilities: Confirm that fiduciaries act in participants’ best interests and monitor plan performance.
- Tax-Advantaged Status: Verify continued compliance with tax rules to maintain the plan’s benefits.
Participant Communication and Education
- Participant Statements: Review the accuracy and clarity of annual participant statements, including account balances, contributions, investment performance, and fees.
- Educational Resources: Ensure participants have access to tools and workshops that help them make informed investment decisions.
Defined Contribution Plan Participation and Enrollment
- Participation Rates: Monitor participation trends and implement strategies to increase enrollment, particularly among younger or lower-income employees.
- Automatic Enrollment: Ensure employees are enrolled correctly and given opt-out options.
- Opt-Out and Opt-Up Features: If automatic escalation is included, verify its proper implementation.
Audits and Financial Oversight
- Internal or External Audits: Conduct annual audits to review contributions, distributions, and investment performance.
- Financial Reporting: Review the plan’s financial reports for accuracy and transparency, verifying that all contributions, investments, and withdrawals are accounted for properly.
Technology and Data Integrity
- Data Accuracy: Ensure participant data, including contribution histories, investment choices, and personal details, is correct. Address discrepancies promptly.
- Plan Administration Systems: Evaluate the efficiency and security of the platform used to manage the plan. Consider changes if necessary to improve the participant experience.
Investment Performance
- Asset Performance: Assess whether investments (e.g., stocks, bonds, mutual funds, etc.) are meeting performance expectations relative to benchmarks.
- Risk Profile: Review the investment mix to ensure it aligns with participant risk tolerance, especially as they near retirement.
- Fund Choices: Evaluate available investment options to ensure that they remain appropriate, competitive, and diversified.
Defined Contribution Plan Actionable Recommendations
- Plan Enhancements: Identify opportunities for plan improvements, such as adding investment options, adjusting contribution limits, or offering new educational resources.
- Participant Engagement: Implement outreach efforts to educate and re-engage employees about the benefits of participating in the plan or adjusting their contributions.
Your service providers, including your TPA, investment advisor, and recordkeeper, can assist with these critical tasks. Regular plan reviews ensure compliance, enhance performance, and ultimately help participants achieve their retirement goals with a well-maintained Defined Contribution Plan.Never hesitate to contact us with any questions you may have. At Watkins Ross, we’re here to help!
