EGTRRA Restatement
As you probably know, the laws governing retirement plans have been amended several times in the last few years.  In addition, the IRS has adopted a new procedure that establishes a recurring six year cycle for plan restatements that need to occur as a result of these law changes.  We are now approaching the final two years of the current cycle for profit sharing/401(k)  and similar plans that were adopted on an IRS pre-approved (“prototype” or “volume submitter”) plan document.

At this time, all service providers are awaiting IRS approval of plan documents.  We anticipate receiving approval letters during the first quarter of 2008.  Plans on a TSC document will be given two years from that date to be restated.  In this process a new document for your plan will be drafted.  Every retirement plan in the United States must go through this process.

As a part of the expert services we provide for your plan, TSC has been monitoring the IRS required restatement process and working for the past few years to prepare and make this easy for our clients.  In many cases, all you will need to do is sign the new document package we send to you.

A letter from TSC with more information regarding this EGTRRA restatement will be sent out to our clients in the near future.

The Pension Protection Act (PPA) amended the law to provide fiduciary protection in situations where the plan automatically invests participant money in a Qualified Default Investment Alternative (QDIA).  We anticipate that every participant-directed plan that uses a default investment should consider the use of a QDIA for situations where participants fail to give investment direction. 

Previously, it was common to designate a money market or similar stable value investment as the plan's default.  The idea was the conservative investment would protect participants' money and eliminate the potential for loss of their investment.  From a liability standpoint, plan fiduciaries generally favored this approach given the fact they are essentially making an investment decision for the participant.

As a result of the PPA, the practice of defaulting into these conservative investments is viewed as inappropriate for long-term investing.  In addition to the long term investment benefits for the participants, QDIA’s provide fiduciary protection if certain conditions are met and appear to be the more appropriate choice for default investing.

Generally, employers who wish to obtain fiduciary protection by default investing participants into a QDIA will need to provide for a default investment product that falls into one of three categories:

• A target date fund - a fund based on individual’s age, life expectancy or years until retirement age
• A balanced or "risk based" fund - investment strategy based on demographics of the plan as a whole, i.e., average age of participants
• Managed account- investment manager using a strategy based on individual’s age, years until retirement age, etc.

The final QDIA rules provide that capital preservation funds, such as stable value and money market funds will not qualify as QDIAs for default investments made on or after December 24, 2007.  Certain types of capital preservation fund balances invested prior to December 24, 2007 may be grandfathered if certain rules are met.

In addition to the normal investment information you provide to participants, the QDIA rules require you to provide initial and annual notices to participants.  Participants must be given the option to transfer defaulted assets to other plan investments without penalty and must also be allowed to direct their investments at the same frequency as others permitted in the plan.

Adding a QDIA to your plan is voluntary and there is no required deadline to do so.  However, complying with the QDIA rules as soon as possible can provide an additional comfort level to employers' concerns with their potential liability exposure for defaulted investments.

Some coordination with your plan’s investment provider is needed in order to implement the QDIA.  Investment providers have already begun sending information to their clients (including a sample QDIA Notice) regarding the implementation of the QDIA via it's product offering.  For a small fee, TSC can assist you in coordinating the implementation of the QDIA and completing the required participant notifications.

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A new participant packet of information should include the following items:

An up-to-date copy of the plan’s Summary Plan Description (SPD) with all applicable Summary of Material Modifications (SMM) attached.

An Enrollment/Election Form. The participant will select the amount to be withheld from their pay for investment into the plan for each pay period. The SPD will address any applicable limits on these deferrals. A person may choose to opt-out of the plan by electing not to defer.

An Investment Election Form. Often combined with the enrollment/election form, this form allows the participant to allocate their contribution among various fund choices. Often, these forms are handed out shortly before or during a participant education/enrollment meeting (either individually or in a group) held by your plan’s investment advisor.

A Beneficiary Designation Form.  The participant chooses a primary and secondary beneficiary in event of death. A married participant must have the signature authorization of their spouse if choosing a non-spouse as primary beneficiary.

Notices. Depending upon the specific features of each plan, applicable notices for Safe Harbor, Automatic Enrollment, QDIA and Participant Benefit Statement Delivery. These notices should be given to enrollees at least 30 days prior to enrollment date or upon date of hire for plans with immediate eligibility.