You decide that offering a retirement plan to employees is a wise choice....a great way to attract quality employees, and a great way for you to save for retirement too, a win-win situation!
Arm yourself with as much information as possible while you embark on the journey to establish a plan, and be aware of common pitfalls of pension administration:
1. You can do it yourself, how hard can an annual tax filing be?
Pension administration is much more than filing an annual Form 5500. For starters, pension administration consists of designing and maintaining a plan document that best suits the needs of your organization. By hiring a Third-Party Administrator (TPA) to assist you in creating and maintaining a plan, you will be able to rely on the expertise of a consultant who will lead you in the right direction. Firms grow and change, and so will your retirement plan. Allow an experienced TPA to perform the pension administration functions your plan requires, while ensuring the plan changes to fit the needs of your company as your company changes.
Pension administration also consists of non-discrimination testing, trust accounting, contribution calculations, fulfillment of notice and disclosure requirements, investment selection and review, etc. (the list of tasks associated with pension administration goes on and on).
2. Ignoring minor oversights in pension administration.
A minor oversight can become a major issue, if you fail to properly correct and document the actions taken to address the oversight.
You wear several hats in your organization and may, from time to time, forget to provide newly eligible employees enrollment paperwork, send in deferral contributions within the required time allowed by the DOL, or process a requested change in employee deferral contributions. Oversights will happen in pension administration, no matter how hard you try to avoid making a mistake. The rule of thumb in pension administration is to communicate to your TPA in writing what has happened and request a way to properly document and correct the oversight. Immediately addressing oversights in pension administration will save you from spending wasted time, energy and money in the long run!
3. Simplifying procedures and making minor changes.
Simplifying procedures to make plan administration less of a burden on your human resources manager makes sense, so why not simply at every opportunity? Successful pension administration is the goal of all retirement plans. Being successful means providing the most effective benefit to all employees, while keeping costs and time spent internally administering the plan to a minimum. When it comes to simplifying pension administration tasks, do so often, but consult your TPA before making changes. Some changes may have a domino effect on how the plan operates.
For example, if you decide to add Roth after tax contributions to the plan, it may seem as simple as working with your payroll company to properly deduct the contributions from an employee’s paycheck. Adding Roth to a plan affects the loan, rollover, and in-service withdrawal features of the plan, just to name a few. How will you treat Roth deferrals when funding loans? Will you allow Roth rollover contributions to the plan now that you allow Roth contributions? Did you amend the plan to document the change and properly notify employees? Does your custodian know about the change, and do your enrollment and distribution forms address the new option(s)? Sometimes a simple change to the plan can have a large affect on day to day pension administration procedures.
A long list of pitfalls of pension administration exist, and the above are just a few of PPA’s (no, not Pension Protection Acts, but PITFALLS of PENSION ADMINISTRATION) to understand and avoid!
Image courtesy of Stuart Miles.