Newsletter Articles

A qualified retirement plan incurs a variety of administrative expenses throughout its existence. These include fees for establishment, annual valuations, government reporting requirements, the processing of loans and benefit distributions, and plan termination.

Charlie Consultant is meeting with Vince to review the plan year end compliance testing and 5500 form for his computer company’s 401(k) plan. As they are saying their good-byes, Vince mentions that his vitamin company has been growing dramatically, and in a couple more years he may consider setting up a 401(k) plan for those employees. Charlie’s eyes get wide, his heart starts pounding and his mouth drops open in shock. “What vitamin company?” he asks.

Increased benefit and compensation limits included in the Economic Growth and Tax Relief Reconciliation Act (“EGTRRA”) as well as the downturn in investment markets have refocused attention on defined benefit plans as alternatives to defined contribution plans. The defined benefit plan design can offer larger accumulations at retirement for some small business owners with lower costs for younger, non-key employees. However, there can be negative consequences that must be explored before such a plan is adopted.

When William Shakespeare wrote “neither a borrower nor a lender be,” he probably never envisioned a world in which millions of people could be both borrower and lender of their own retirement funds. Nor could he have anticipated that such loans would be available at extremely reasonable interest rates and without even an ounce of flesh as collateral! With all due respect to the great playwright, even the most profound and well-accepted adages need to be reevaluated in our rapidly changing society.

Despite negative publicity stemming from stock market losses and the Enron fiasco, qualified plans remain an integral part of any business operation. Recent tax law changes have made qualified plans more attractive by increasing contribution and deduction limits and reducing red tape, making it easier than ever for employers to sponsor a retirement plan.

Few aspects of plan administration are more important than communications to the plan’s participants and beneficiaries. As the retirement industry evolves, so does the awareness that communications to participants are crucial. Certainly this is abundantly evident in legislation in recent years.

Retirement plans are funded by contributions from employers and/or employees, depending upon the type of plan and the provisions established under the plan document. These contributions must be deposited to the trust established under the plan by certain dates.

Many people view plan documents as word processing forms, plan design as “fill-in-the-blank,” plan administration as pushing the right button on a computer, and 401(k) investments as nothing more than a group of mutual funds.