Suspending Safe Harbor Contributions

On May 18, 2009 the IRS issued proposed regulations allowing financially stressed Plans to suspend their safe harbor non-elective contribution in the event that they meet substantial business hardship and need relief from the required contribution.

Internal Revenue Code section 412(c)(2) states the factors taken into account in determining the existence of a substantial business hardship include, but are not limited to, whether or not: the employer is operating at an economic loss; there is substantial unemployment or underemployment in the trade or business and in the industry concerned; and the sales and profits of the industry concerned are depressed or declining.  Whether a substantial business hardship exists is a facts and circumstances determination that the Employer will need to make and support if ever challenged.

It is also important to note that the Plan is not safe harbor for the year(s) in which the safe harbor contribution is suspended.  Subsequently, the Plan is subject to certain compliance tests that were not required under the protected safe harbor status.

Regulations require the Employer to take specific steps in order to amend the Plan and notify the employees of this change.  Please contact your TSC Retirement Plan Administrator for more information.

In order to comply with the fiduciary responsibility standards outlined by ERISA, an Investment Policy Statement (IPS) should be prepared with your investment professional for your plan, though not required by law.  By formally stating the intention to review the policy at least annually and establishing the ability of the investment committee to amend the investment policy statement, if necessary, the IPS provides an additional layer of protection for the plan trustees.

An IPS generally defines roles of parties involved in the management of plan assets and administration of the plan.   It should acknowledge the applicability of ERISA fiduciary standards and rules.  The policy should state the intention to maintain comprehensive written records of all decisions and decision-making processes, to establish and be able to demonstrate procedural prudence on the part of the investment committee and describe procedures providing for formal requirements of investment committee meetings (e.g., frequency, quorums, voting rules, membership positions).

For more information regarding Investment Policy Statements, please check with your Investment Professional.

Not unlike the health care debate, many people believe our  401(k) retirement savings system needs reform.  On the one side we have those who believe the entire system needs to be scrapped and replaced with an entirely new government backed system.  The other side believes changes are needed to improve it, but the basic 401(k) system is sound and has been a very effective savings program. I am of the latter opinion and believe a new government backed system is not the answer.  In fact, many of the successes of today’s 401(k) system are due to the many small improvements it has experienced since first coming into popularity in the 1980’s.

As administrators, we see the numbers and track the results. The TSC 401(k) Health Check is our tool to help financial advisors and plan sponsors measure the success of their plans and make changes to improve them.  Perhaps the best thing recently implemented to improve or refine the 401(k) system came from the passage of the Pension Protection Act of 2006.  This act allowed for automatic contribution and automatic increase features in qualified plans.  However, in practice those features were not widely implemented due to some administrative barriers that were created as part of the legislation.  Removal of those administrative barriers would be a good start at improving the current 401(k) system.

Another important and long awaited improvement would be fee disclosure.  Clarifying fees paid by plan participants for recordkeeping and investment services is long overdue.  There is an enormous variety of service fee and revenue sharing arrangements amongst service providers that effectively limits the ability of plan sponsors to understand and compare competing service providers.  The fact that the 401(k) industry is extremely competitive might be the only assurance for plan sponsors who are concerned about not knowing how they compare to others.  It does not appear we will have to wait much longer as fee disclosure is at the top of the list for our legislators and TSC welcomes reform that makes the job of selecting service providers easy for plan sponsors.

There are some lessons we’ve learned over the past 43 years in business.  For example, we know that in our role as service provider for ensuring the compliance of your plan, we are often perceived as an extension of your business.  Most of us agree that the past year was, for many plan sponsors and participants, tumultuous.  Yet, despite these challenging economic times, 99% of TSC clients surveyed (a total of 738 respondents) rated TSC as good to excellent for understanding their company needs and offering a range of services to meet those needs.  We’re extremely proud of those numbers and believe that fee disclosure legislation as mentioned in the previous paragraph will only help to improve our value proposition.

Perhaps nothing is more telling about our commitment to service and building trust than our client retention rate.   For the past six years we have retained more than 95% of our clients and last year we topped the charts at 98.1% client retention.  We greatly appreciate the support and loyalty we receive from clients and advisors.  We will work hard to continue earning your trust.

When a participant terminates employment, it is the employer’s responsibility to provide the participant with the information needed to initiate a distribution of their vested account balance from the plan.  If your plan does not allow for an immediate distribution, the timing of providing this information to the participant should be consistent with the terms of the Plan Document.  The forms that should be provided to the participant at the appropriate time can be found in the Distribution Package section on your TSC secure website under the “Forms and Reports” tab.  Also included in this section are instructions for the Trustee which outline the steps that should be followed to complete the processing of a distribution.

Note:  Plans that utilize TSC's full service distribution services will simply need to complete the Notice of Participant Termination form found in the section identified above and TSC will provide all the necessary forms to the participant.

If your plan allows for loans, in-service distributions or hardship withdrawals, these forms can also be found on your TSC secure website under the “Forms and Reports” tab.  All of the forms under the appropriate heading within the tab should be printed and provided to a participant requesting a withdrawal from the plan.  Forms should always be forwarded to TSC for processing after the participant and the authorized signer have completed, dated and signed the forms.  It should be noted that if your plan does not allow for loans, in-service distributions or hardship withdrawals, the applicable forms will not appear on your TSC secure website.

If you have any questions concerning how to gain access to your TSC secure website, please contact your TSC Retirement Plan Administrator.