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2. The plan offers enough investment
options and support services to
accommodate every type of investor
and user of the plan.
3. The plan protects the participant's
ability to accumulate money by
keeping the fees paid to run the plan
at a reasonable level that is trans-
4. The investment managers, based on
their experience, process, and phi-
losophy, are expected to perform
close to, or in excess of, their bench-
mark targets and in the top of their
peer group.
5. The operation of the plan follows the
written document, and said docu-
ment is written in compliance with all
current tax and labor laws.
All 401(k) plans are regulated by the
Retirement Income Security Act
(ERISA), whose rules are too numer-
ous and complicated for any entity to
ensure perfect compliance. So, even if
you are confident that items #1 through
#4 are fulfilled, how can you be sure
you are compliant with IRS and ERISA
requirements (#5)?
More than 15 years ago, the IRS was
seeing so many errors while auditing
retirement plans that voluntary correc-
tion programs were created to help
plan sponsors avoid plan disqualifica-
tion. This program was so successful
that the Department of Labor (DOL)
began a similar program for fiduciary
violations. According to the Department
of the Treasury, from 2006 to 2008, the
number of plans filing for voluntary cor-
rection rulings with the IRS rose "near-
ly 60 percent." With so many "profes-
sionals" looking over plans, why is the
number of plans that are making
these mistakes and not following the
rules increasing?
The bottom line is that the plan docu-
ment is the instruction manual for the
plan and provides plan sponsors,
recordkeepers, consultants, and audi-
tors with details specific to the plan in
order to ensure accurate operation.
How many of us have read our car's
owner manual from cover to cover?
Not reading the plan document when
operating or reviewing the plan can
result in violations, which may incur
significant fines.
To that end, even the plan with the
best service model, investment
options, and fee structure can become
tainted and exposed to the potential
for disqualification. Therefore, a loss of
confidence to those involved with the
plan can resonate.
When operational or plan document
errors are uncovered, clients are hard
pressed to understand why they hap-
pen. Plan recordkeepers are very good
at setting up systems to manage the
many nuances of a retirement plan.
However, those systems have to be
programmed and monitored by people
who may misinterpret a plan provision
or miscode the system.
As an employer, your finance, human
resources, and payroll departments
may be making their own interpreta-
tions of how the plan should be operat-
ed. For example, when your staff mem-
bers request salary feeds for the
provider, what definition of salary are
they using? Who decides how the
match is calculated? Does the payroll
vendor read the plan document or did
you send them "your" version of how
the match is calculated?
While the provider may have compe-
tent professionals working on the plan,
they may not be as focused on the
details as you would be. All 401(k)
plans should be monitored by experi-
enced, seasoned professionals using a
checklist of common issues and mis-
takes to be avoided.
Like bringing your car to the mechanic
for an oil change and routine service,
maintenance is required for a 401(k)
plan to run properly and to ensure that
it will continue to get you where you
need to go!
Before you end up paying penalty fees
to the IRS or DOL, you may want to run
your plan through a series of reviews to
be sure it really is running smoothly.
Mark A. Sarlo, CEBS,
vice president and
director of retirement
plan services at USI
Consulting Group,
has more than 23
years of experience
with retirement plans, employee
benefit administration, and consulting
with private, public, not-for-profit, and
multi-employer plans. He holds a B.S.
degree in marketing from the
University of Connecticut, is a
Certified Employee Benefit Specialist,
and has served as chairman of the
Southern New England chapter of the
International Society of Certified
Employee Benefit Specialists. He is a
registered representative offering
securities through USI Securities, Inc.
Member FINRA/SIPC. Sarlo can be
reached at or
advocacy community education
What kind of maintenance checks can you, as a plan sponsor,
perform to identify small issues and avoid bigger problems?
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