While you certainly value the time they spend working for your company, as a business owner you want to help your employees in their efforts to save for the time when they can finally retire. But establishing and maintaining a plan that will let your employees’ savings grow tax-deferred does come with additional responsibilities.
In order to meet these responsibilities — listed below — you’ll want to make sure you plan carefully when establishing a qualified retirement plan. Failure to live up to the terms of your agreement could prove costly for your business. Following are some important considerations:
Retain plan records. The law governing qualified plans requires plan sponsors to retain all plan-related materials for at least six years after the filing date. In addition, these documents need to be preserved in such a way that they are readily accessible for easy retrieval. Records that are lost, stolen or destroyed before that six year period is up would need to be recreated in short order should the Department of Labor request them.
In some cases, you may be able to contract with outside firms to provide certain reports and prepare specific documents. But the responsibility to retain supporting records for these filings ultimately lies with you. The list of documents that must be retained is lengthy, so you should make sure you have a good grasp on what you need to save and how you’ll organize it all.
Distribute employee notices. To comply with the Employee Retirement Income Security Act — the law, commonly referred to as ERISA, that regulates the operation of private pensions and benefit plans — employers must distribute to employees certain important documents. If applicable, these may include such items as blackout notices, enrollment material, summary plan descriptions and summary annual reports, to name a few. If you don’t see to it that these are sent out in a timely manner, your business could incur substantial penalties. To avoid these penalties, your plan’s administrator or record keeper should provide you with the applicable required notices and instructions for their distribution.
Make prudent investment choices. In most types of qualified retirement plans, the underlying investments help plan participants work toward their retirement goals. As a result, ERISA requires that you make prudent investment decisions for the sole benefit of all plan participants and that you diversify investments to help reduce the risk of large losses. Although it’s not required, ERISA strongly encourages companies to develop a written investment policy statement. Your policy should provide a clear statement of your plan’s investment objectives to help identify appropriate investments and provide standards for evaluating investment choices on an ongoing basis.
Make timely salary deferral deposits. Salary deferrals withheld from employees’ paychecks must be deposited into the plan as soon as reasonably possible, per DOL regulations. You’ll want to work with your payroll department — or with your outside payroll provider — to make sure salary deferral contributions are deposited with the plan custodian immediately after being withheld. The standard deadline is the fifteenth business day of the month following the month in which money was withheld, but the DOL has implemented fines against businesses it believes failed to make deposits quickly enough.
These are some of the main ideas, but there are plenty of details to coordinate. Working together with your financial advisor, you can establish a plan that will benefit your employees, and provide your business with another attractive compensation element.
Chris Facka, Financial Consultant of A.G. Edwards, can be reached at 642-6000. A.G.