As a Third Party Administrator, it is our job to make sure that your retirement plan meets your needs in a way that meets all of the various rules and regulations. The laws that govern retirement plans spans thousands of pages of the Internal Revenue Code and ERISA and would take an enormous amount of time for the average business owner to become an expert on. We work with you to review your plan design, and make sure that you have the plan that best meets your goals. Then, we will work with you and your team of advisors to implement the new plan or amend your existing plan. Once the plan is in place, we will work with your team of employees to assist them with daily plan operations, and we will perform the annual compliance work needed to maintain your plan’s qualified status according to the plan’s design. Each year, we will provide a review of the plan to ensure that it is continuing to meet your needs.
Answering the following questions will help us determine what kind of plan design is appropriate for your situation:
Once we determine what kind of plan is right for you, we will request employee census information so you can see what amount of contribution is possible, and how it is broken down by employee. When you see the numbers, you will be best equipped to make a decision.
After the plan design is finalized, we will prepare the plan documents needed to establish the plan, and all of the required participant notices. Then, we will work with your financial professional to set up the plan’s investment accounts and an enrollment meeting with the participants.
The SECURE Act of 2019 extended the due date for establishing a new qualified plan. Plan sponsors may now adopted a qualified retirement plan retroactive to the first day of the taxable year as late as the due date of the return for the plan sponsor, including extensions. Keep in mind that only the employer contributions, such as profit sharing and cash balance, can be adopted retroactively. 401(k) deferrals and matching contributions, can only be effective after the plan is adopted. For example, a business with a taxable year ending on December 31, 2020 that has obtained an extension of its tax return until September 15, 2021 can adopt a plan and make deductible employer contributions for 2020 as late as September 15, 2021.
Plans that contain a 401(k) feature need to provide an effective ability for employees to make salary deferrals. We recommend that these plans be set up at least 3 months prior to the close of the plan year. If the 401(k) plan is considered a Safe Harbor 401(k) plan with a matching contribution, the 401(k) and Safe Harbor components must be set up at least 3 months prior to the close of the plan year. For example, if the plan year runs on the calendar year, a 401(k) plan should be set up no later than October 1st.
Employer contributions (employer match, profit sharing, defined benefit & cash balance) must be deposited by the due date of the employer’s tax return, including extensions. If the plan is a pension plan, such as a defined benefit plan or a cash balance plan, the contributions must be deposited by the earlier of the due date of the employer’s tax return, including extensions, or 8 1/2 months after the close of the plan year.
Employee monies (salary deferrals and participant loan payments) must be deposited as soon as administratively feasible after they are withheld from the employee’s paycheck. The Department of Labor says that employee monies deposited within 7 days of the date they are withheld will be deemed to have been deposited timely.
The plan must identify a “Trustee”, which is the person or entity that will be responsible for investing the money. Many times, the business owner will be the trustee, but there are trust companies that can be hired to perform these functions. The trustee is a fiduciary of the plan and has a duty to invest plan assets prudently and in the best interest of the plan participants.
401(k) Profit Sharing Plans may be set up to allow participants to direct their own investments. In this case, the trustee is responsible for selecting appropriate investment options for the plan. The trustee must monitor the plan investment options to ensure that they are still appropriate for the plan over time.
Quite often, the trustee will work with a financial or investment professional to develop an Investment Policy Statement which outlines a diligent review process and will allow the trustee to monitor and replace plan investments in an objective manner. DF Pensions, Inc. is not an investment advisory firm, and we cannot assist you with investment of the plan assets, but we work very closely with your investment advisor during the course of our annual work.
A variety of investment vehicles are allowed to be placed in a qualified retirement plan. Traditional assets, like stocks and mutual funds are the most common investments. Non-traditional assets, like real estate, limited partnerships, and hedge funds, can also be placed in a plan, however there are strict rules regarding the valuation, reporting and use of these types of assets. We strongly recommend that if any non-traditional assets are placed in the plan that you work with an investment advisor and attorney that has experience dealing with these types of investments in qualified plans.
The plan trustee must always invest plan assets diligently and in the best interest of its participants, so while a speculative investment may not be prohibited by law, if it is not appropriate for the participants, it cannot be invested in.
A record keeper is a company that maintains the participants account records. In a 401k plan, quite often the participants will be given the ability to invest their own account, and those account values will be updated on a daily basis. That means that every dollar that goes into the plan must go into the participants account, be classified as the right money type (401k, match, profit sharing, etc.), and be placed in the participant’s chosen investment lineup. Participants have access to their accounts through the company website, which allows them to view balances, make investment elections, and request distributions.
Though DF Pensions, Inc. does not perform these daily recordkeeping functions, we partner the leading providers in the nation which provide these services such as John Hancock, American Funds, Transamerica, and many others. These recordkeepers charge their own fees for this service which are separate from our fees for annual administration, but having these services available helps engage participants in their retirement plan and significantly improves participant outcomes.
We do provide “balance forward” recordkeeping. In this type of plan, there is a single pooled investment fund, which all participants’ benefits are invested. Once a year, we value the account and allocate all contributions, earnings and expenses to the participants. With this type of simplified recordkeeping, participants do not have access to their accounts, but plan expenses will be significantly less.
Our primary job is to make sure that your plan is designed and operating in a way that complies with all the laws that cover qualified retirement plans. Each year we put together a comprehensive review of your plan. We start by collecting census information for all of your employees as well as investment statements for all plan assets. We determine which employees are eligible, who must receive a contribution, and how much their contribution must be. Then we reconcile the plan assets to ensure that all contributions due were actually deposited into the plan. Finally, we prepare all the annual government filings, such as the Form 5500 and PBGC filings, as well as the required participant notices.
The plan document is the single most important part of your qualified plan. It describes the eligibility, benefits, vesting and distribution processes. It creates the trust that holds the plan assets and establishes the plan as its own legal entity. The plan document must comply with all pension law, and as laws change, it must be amended to maintain compliance. DF Pensions, Inc. monitors these changes in law and will work with you to maintain your plan documents.