Kick start your planning by checking out the basics of 401(k); a listing of relevant points regarding 401(k) plans. We have also provided a glossary of key administration terms and frequently asked questions to further assist you.

WHAT IS A THIRD PARTY ADMINISTRATOR (TPA)?

  • A TPA is an organization that manages many day-to-day aspects of your employee retirement plan.

    A TPA performs responsibilities such as:

    • Designing retirement plan documents
    • Preparing employer and employee benefit statements
    • Ensuring the plan is in compliance with the IRS non-discrimination requirements
    • Preparing annual returns and reports required by IRS, DOL or other government agencies
    • … and much more.

    Knowledge, time and cost are among the biggest factors a business owner faces when making a decision to use a TPA. The Retirement Advantage, is able to address all of these concerns in an efficient and cost effective manner.

  • Why do I need a TPA?

    401(k) and other retirement benefit plans can be highly technical field. Keeping up with changes in the retirement plan industry, best practices, compliance, and other administration tasks makes hiring a specialized company, such as TRA, actually more cost effective than doing the same work in-house. Ultimately, choosing TRA means one less thing to worry about.

    The rules of qualified plans are quite intricate and require important mathematical calculations called compliance testing to ensure your retirement plan does not discriminate against non-highly compensated employees

  • Why should I choose The Retirement Advantage as my third-party administrator?

    Many mutual funds, banks, insurance companies and brokerage firms provide retirement plan services as a byproduct of their core businesses. Our core business is retirement plan administration.

    We actively listen, professionally consult, and deliver customized retirement plan solutions. While other third party administrators offer one-size-fits-all style plan designs, we take the time to start at the beginning and design your optimal retirement plan, together.

    TRA is “large” enough to support over $5 billion in retirement assets under our administration but still small enough to still give you and your employees the personalized service you expect.

  • What's so special about retirement plan design?

    The most important but often forgotten role of a TPA is plan design. We are experts in plan design and deliver retirement plans that maximize contributions to highly compensated employees within the limits of the law.

    Much like an attorney providing solid legal advice to clients, we help you maximize your contributions. Superior retirement plan design is an art form that should not be discounted if you are a plan sponsor that has the financial backing to support contributions to your employees.

  • Is a TPA required for a Solo (K)?

    If you are willing to do the heavy lifting sometimes associated with sponsoring a retirement plan then you might be able to afford not to engage the services of a TPA.

    However, in our experience, most plan sponsors would rather focus on running their business than saving a few pennies to administer their retirement plan. Additionally, we offer Solo (K) plans that are designed to assist sole proprietors to focus on their business instead of the minutiae of sponsoring a retirement plan.

  • How do you get paid?

    It varies depending on your retirement plan design and the services we provide. If you would like us to provide a quote on providing services to you and your plan, please contact our sales team.

401(k) Basics

  • As more Americans shoulder the responsibility of funding their own retirement, many rely increasingly on their 401(k) retirement plans to provide the means to meet their investment goals. That’s because 401(k) plans offer a variety of attractive features that make investing for the future easy and potentially profitable.

    Below we’ve listed a number of key points regarding 401(k) plans. Be sure to talk to your employer or plan administrator about the specific features and rules of your plan.

  • What Is a 401(k)?

    A 401(k) plan is an employee-funded savings plan for retirement. It takes its name from the section of the Internal Revenue Code that created these plans, which are also known as “qualified defined contribution” retirement plans – “qualified” because they meet the tax law requirements for favorable tax treatment (described below) and “defined contribution” because contributions are defined under the terms of the plan, while benefits will vary depending on plan balances and investment returns.

  • Tax Treatment

    The 401(k) plan allows you to contribute up to $18,000 of your salary to a special account set up by your company. Future contribution limits will be adjusted for inflation. Keep in mind that individual plans may have lower limits on the amount you can contribute. In addition, individuals age 50 and older who participate in a 401(k) plan can take advantage of “catch-up” contributions of an additional $5,500.

    401(k) plans now come in two varieties: Traditional and new Roth-style plans. A traditional 401(k) plan allows you to defer taxes on the portion of your salary contributed to the plan until the funds are withdrawn in retirement, at which point contributions and earnings are taxed as ordinary income. In addition, because the amount of your pretax contribution is deducted directly from your paycheck, your taxable income is reduced, which in turn lowers your tax burden.

    The tax treatment of a Roth 401(k) plan is different. Under a Roth plan, contributions are made in after-tax dollars, so there is no immediate tax benefit. However, plan balances grow tax-free; you pay no taxes on qualified distributions.Both traditional and Roth plans require that distributions be qualified. In general, this means they must be taken after age 59 (or age 55 if you are separating from the employer whose plan will be making the distributions), although there are certain exceptions for hardship withdrawals, as defined by the IRS. If a distribution is not qualified, a 10% IRS penalty will apply in addition to ordinary income taxes on all pretax contributions and earnings.

    If your plan permits, you can make contributions in excess of the current limit of $18,000 ($24,000 if over age 50), as long as your total contribution is not more than 100% of your pretax salary, or $45,000, whichever is less. That means if your salary is $100,000, you can contribute up to $45,000 total to your 401(k) plan during that year. In the case of a traditional 401(k), however, only the first $18,00 ($24,000 if over 50) of your contributions can be made pretax contributions over and above that amount must be made after taxes and do not reduce your salary for tax purposes. (see the latest Traditional and Roth IRA Limits here)

  • Matching Contributions

    Besides its favorable tax treatment, one of the biggest advantages of a 401(k) plan is that employers may match part or all of the contributions you make to your plan. Typically, an employer will match a portion of your contributions, for example, 50% of your first 6%. Under a Roth plan, matching contributions are maintained in a separate tax-deferred account, which, like a traditional 401(k) plan, is taxable when withdrawn.

    Employer contributions may require a “vesting” period before you have full claim to the money and investment earnings. But keep in mind that if your company matches your contributions, it’s like getting extra money on top of your salary.

  • The Advantage of Tax Deferral

    As you evaluate the potential benefits of a 401(k) plan, consider the advantage of tax deferral. When a hypothetical $100 monthly investment is made for 30 years in a traditional 401(k) plan, vs. a fully taxable investment account. Assume an annual 8% average rate of return compounded monthly and a 25% tax rate. For simplicity, it assumes the taxable account earns interest income only, which is taxed at the end of each calendar year.

    The result? The entire amount in the 401(k) plan was withdrawn after 30 years and taxed, there would still be more money left than in the taxable account. Bear in mind that withdrawals from a 401(k) plan before age 59 may be subject to penalty taxes. This example is hypothetical and not indicative of future performance in your retirement plan.

  • Tax-Deferred Compounding

    The benefit of compounding reveals itself in a tax-advantaged account such as a 401(k) plan. If your $100 monthly contribution accumulates tax-deferred over 30 years, you could grow your retirement nest egg to $150,030. That’s a difference of almost $50,000 just because you didn’t have to pay taxes up front! Of course, you’ll have to pay taxes on earnings and deductible contributions to a traditional 401(k) when you withdraw the money. But that will likely be when you are retired and may be in a lower tax bracket.

  • Choosing Investments

    Generally, 401(k) plans provide you with several options in which to invest your contributions. Such options may include stocks for growth, bonds for income, or money market investments for protection of principal. This flexibility allows you to spread out your contributions, or diversify, among different types of investments, which can help keep your retirement portfolio from being overly susceptible to different events that could affect the markets.

  • Changing Jobs

    When you change jobs or retire, you generally have four different options for what to do with your plan balance. You can keep the plan in your former employer’s plan, if permitted; you can transfer balances to your new employer’s plan; you can roll over the balance into an IRA; or you can take a cash distribution. The first three options generally entail no immediate tax consequences; however, taking a cash distribution will usually trigger 20% withholding, a 10% IRS penalty tax, and ordinary income tax on pretax contributions and earnings.

    When deciding on which of the first three options to choose, you should consider available investment options and ease of access. Often, rolling over to an IRA provides the greatest flexibility and control, while affording a wide choice of investment alternatives.

  • Service

    Length of employment with the employer maintaining the plan.

  • Terminated

    No longer employed at your company.

  • Borrowing from Your Retirement Plan

    One potential advantage of many 401(k) plans is that you can borrow as much as 50% of your vested account balance, up to $50,000. In most cases, if you systematically pay back the loan with interest within five years, no penalties are assessed.

    If you leave the company, however, you may have to pay back the loan in full immediately, depending on your plan’s rules. In addition, loans not repaid to the plan within the stated period are considered withdrawals and will be taxed and penalized accordingly.

  • Fiduciary Bond

    As an additional protection for plans, those who handle plan funds or other plan property generally must be covered by a fidelity bond. A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond.

  • Get Advice

    A 401(k) plan can become the cornerstone of your personal retirement savings program, providing the foundation for your future financial security. Consult with your plan administrator or financial advisor to help you determine how your employer’s 401(k) plan could help make your financial future more secure.

    Contact TRA today to get started

FAQ

  • Contributions
    • How can I change my deferral/contribution amount?

      You can request a Salary Deferral Change Form from your Plan Administrator.

    • I would like to cancel my salary deferrals for a while, is this possible?

      Yes, many plans allow you to cancel your deferrals at any time. Other changes can be made during the allowed deferral change times. To reinstate your deferrals you must fill out a new form with the new percentage or dollar amount.

    • What is the maximum I can contribute to my account per year?

      This amount varies from plan to plan, but generally the amount can range from 0% to 100% of your compensation or $18,500 per year, whichever is less.

  • Distributions
    • How can I gain access to my 401(k) savings if I become disabled?

      In most plans if you become permanently disabled, you will be able to withdraw money from your retirement account. Certain criteria must be met in order to obtain a disability distribution. Contact your Plan Administrator to determine if you meet the criteria.

    • I have already withdrawn my 401(k), but I received a statement showing a small remaining balance

      Occasionally, after you have already received a check for the balance in your account, you may receive a dividend from one of your mutual funds, a company match, or an additional salary deferral. If this happens, you may call your Plan Administrator to request a withdrawal of these funds.

    • If I leave my company, can I leave my money in my 401(k) account?

      When you terminate employment with the company that sponsors your 401(k) plan, you may leave your 401(k) savings in your account depending on your vested account balance. Please check with your Plan Administrator on the specific dollar amount required.

    • If I'm 70 1/2, am I required to start taking distributions from my retirement account?

      Depending on your plan document provisions, you may be required to begin taking distributions from your account.

    • What can I do with the money I receive from a distribution due to death?

      If you are a spouse beneficiary, you can either have the money sent directly to you or you can roll it into an IRA. If you are not a spouse beneficiary, then you may not roll the money into an IRA. The money will be sent directly to you and is taxable in the year in which you receive it. If you are the spouse or children you may be able to keep the money at the plan.

    • What do I do if I am the beneficiary on an account and the account holder has passed away?

      If you are the beneficiary on someone’s retirement account and that person passes away, you should contact your Plan Administrator to request a Death Distribution form.

    • What happens if I leave my employer?

      If you request that a benefit payment be made directly to you, the Plan Administrator is normally required to withhold 20% for U.S. income taxes from the taxable portion of the distribution. The withheld amount is sent to the IRS. If the payment is directly rolled over to an IRA or another qualified retirement plan, there will be no withholding. Detailed information about the tax rules on benefit payments is provided when you request a payment from the plan. You will receive an IRS Form 1099-R at the end of the year reporting this withholding and the taxable portion of your payment.

    • What happens to my account if I die?

      If you die, your account will be paid to the beneficiary you designated. If you do not designate a beneficiary, the plan will pay the amount to your spouse, children, or your estate.

  • Divorce
    • I am going through a divorce; what do I need to do to expedite the 401(k) distribution process?

      If you are going through a divorce and your retirement account is included in a division of property, you should inform your attorney that a QDRO will be involved. If you do this, the parties involved can negotiate the terms and the attorney can make certain the court order or divorce decree includes the provisions required by the IRS and U.S. Department of Labor.

    • What happens to my account if my spouse and I divorce?

      In some divorce cases, the court will award some or all of a retirement account’s assets to the participant’s ex-spouse. If this is done, the court order must meet the conditions of a Qualified Domestic Relations Order as stipulated by the IRS and the U.S. Department of Labor.

    • What is a Qualified Domestic Relations Order?

      A Qualified Domestic Relations Order (QDRO) is a court order that assigns all or a portion of the benefits which would otherwise be payable to a participant under a qualified retirement plan to another person. If the court order does not meet all of the requirements for a QDRO, the plan is prohibited from paying plan benefits to anyone other than the plan participant.

  • General Info
    • Can I make after-tax contributions to my 401(k) plan?

      This provision varies with each plan. Please contact your Plan Administrator to see if this provision is included in your company’s plan document.

    • Is it possible to move funds from my previous employer's retirement plan to my new company's 401(k)?

      Yes, as long as the money comes from a qualified retirement plan and the plan allows rollovers, you may transfer funds into your new employer’s 401(k) plan. Please contact your previous 401(k) administrator to request a Direct Rollover Transfer form.

    • What are the long-term benefits of pre-tax contributions?

      When you contribute to your 401(k) account, the money comes out of your paycheck before federal and most states’ income taxes are assessed. This means that you will pay lower income taxes than you would have paid if you had not contributed to your 401(k) plan during the year. Your contributions are invested and start earning interest and capital gains on a tax-deferred basis. When you start withdrawing money from your account, usually at retirement when you may be in a lower tax bracket, you will pay regular income taxes on the contributions and earnings you withdraw.

    • What is a 401(k) plan?

      A 401(k) plan is a type of retirement plan which is named for a section of the tax law that allows employees to contribute a portion of their compensation, before income taxes, to a company-sponsored retirement plan. The amount the company withholds from your paycheck is called a ‘deferral’.

    • What is a qualified plan?

      A qualified plan is a plan that qualifies for special tax consideration under section 401(a) of the Internal Revenue Code. Your funds must come from this type of plan if you wish to roll them into your company’s 401(k) plan.

    • What is the difference between a profit-sharing plan and a 401(k) plan?

      In a traditional profit-sharing plan, the employer makes contributions to the accounts of eligible employees regardless of whether they choose to contribute to the plan. In a 401(k) plan, the participant chooses to contribute to the plan and the employer may or may not make matching contributions to the 401(k) plan in addition to the amounts the participant elects to defer. 401(k) plans may also have a profit-sharing feature allowing the employer to make profit-sharing contributions to the 401(k) plan accounts of eligible employees.

  • Loans
    • Can I pay off my loan early?

      You have the option of paying off your entire loan balance early. Please contact your Plan Administrator to request a loan payoff amount.

    • If I have an outstanding loan and I need additional cash, what are my options?

      If you already have the maximum number of loans outstanding, depending on the reason for which you need the money, you may have one or two options. Your first and best option is to entirely pay off one of your outstanding loans. If paying off your loan is not financially feasible for you, depending on the reason for your financial need, you may be able to take a financial hardship withdrawal. The drawback to this type of withdrawal is that, unlike a loan, this is a permanent withdrawal from your account. Refer to the questions related to financial hardship withdrawals for more details about this option.

    • Is there any interest assessed on my loan?

      Yes. You will pay interest on your loan, however, both the principal and interest you pay will be deposited directly into your account as your payments are made.

    • Under what circumstances may I take out a loan?

      If your plan allows loans, you may generally borrow up to 50% of your vested balance. The minimum loan amount and number of loans you may take varies from plan to plan.

    • What happens if I leave my company before I pay off my loan?

      If utilizing the TRA prototype document, if you terminate employment with your company prior to paying off your loan, you have two options. Your first option is to pay off your entire loan balance within 30 days of your termination date. Please contact your Plan Administrator to request a loan payoff amount. If you choose not to pay off your loan, then the outstanding amount will be considered a taxable distribution from your account and you will receive a Form 1099-R for the year in which your loan defaulted.

    • What is an amortization schedule?

      An amortization schedule is a timeline that illustrates your principal and interest payments for the life of your loan. You will receive an amortization schedule with your loan promissory note when you first request your loan.

    • Why do I have to pay myself interest?

      Since your 401(k) account is set up for your use after you retire, any money that you withdraw before you retire is no longer generating earnings to maximize your retirement savings. In order to make up for the fact that your loan money is not currently invested, the government requires that you pay yourself interest and therefore, continue to increase your retirement savings.

  • Retirement
    • When can I take a retirement distribution?

      The plan document sets the earliest age at which you may request a retirement distribution.

  • Solo(k)
    • Are loans permitted?

      The TRA Solo(k) Plan allows loans. The maximum loan amount is 1/2 of a participant’s account balance or $60,000, whichever is less.

    • Are rollovers allowed?

      Yes, money may rollover from an IRA, a SEP or a qualified plan such as a Keogh. However, after-tax money may not roll into the TRA Solo(k) Plan.

    • Are takeovers of existing plans permitted?

      Yes. The TRA Solo(k) Plan is designed for new and take-over plans.

    • Can a business owner make contributions in addition to their salary deferrals for themselves?

      A business owner can make employer matching contributions and profit sharing contributions in addition to their salary deferrals subject to eligible plan compensation and plan limits. Employer contributions must be deposited into the plan’s trust no later than the due date of the company’s tax return including extensions.

    • Can a TRA Solo(k) and a Defined Benefit plan be maintained together?

      Employee salary deferrals may be combined with a Defined Benefit plan. Generally, profit sharing contributions cannot be made to the 401(k) plan when combined with a Defined Benefit plan.

    • Can an employee be added to the plan?

      A spouse or additional owner may participate in the plan as long as he or she is on the company’s payroll and meets the plan’s eligibility requirements. Employees other than a spouse or additional owner are not allowed in the TRA Solo(k) Plan. However, the TRA Solo(k) Plan may be used if a business has employees that can be excluded from the plan.

      The following types of employees may be excluded:

      • Employees who are under 21 years of age.
      • Employees who work less than 1,000 hours per year.

      The following types of employees are automatically excluded:

      • Employees who belong to a collectively bargained unit (union).
      • Employees who are nonresident aliens and receive no U.S. income.
    • Can any business establish a TRA Solo(k) Plan?

      The TRA Solo(k) Plan can be established by a business that is 100% owned by an individual, individual and spouse, or additional owner. The business may be incorporated or unincorporated. Unincorporated businesses include C-corporations, S-corporations and LLCs electing to be taxed as such.

    • What happens if a full-time employee is hired other than a spouse?

      The plan can be amended to another type of 401(k) plan administered by TRA that is designed for business owners and employees. This plan can be designed with the business’s future growth in mind.

    • What is the deadline for establishing a TRA Solo(k) Plan?

      The deadline for establishing a TRA Solo(k) Plan is the last day of the business’s fiscal year, generally December 31st.

    • What kind of investments are allowed in the TRA Solo(k) Plan?

      Any investment can be used in the plan including stocks, bonds, CD’s and mutual funds. Life insurance is not allowed.

    • When must a business owner deposit the salary deferral money into the plan trust?

      If the business is unincorporated, the deadline for depositing salary deferrals is generally the due date of the company’s tax return (April 15th).

      If the business is incorporated, the deadline for depositing salary deferrals is the earliest date on which the deferrals can be segregated from the company’s general assets.

    • When must salary deferral elections be made?

      If the business is unincorporated, a salary deferral election specifying the amount deferred must be completed by December 31st. If the business is incorporated, a salary deferral election specifying the amount intended to be deferred must be completed before the compensation is paid. This means the business owner must have some form of compensation such as regular salary, bonuses or commissions that they have not received prior to signing the salary deferral election form but would be received by the last day of their fiscal year.

  • Taxes
    • Is there a penalty tax assessed on retirement savings distributions received too early?

      Generally, if you receive a distribution from your retirement plan account prior to age 59½, a 10% penalty tax will apply in addition to the applicable federal (and in some cases, state) income taxes. In some cases, such as distributions due to death, disability, or termination of employment after age 55, the 10% early withdrawal penalty tax does not apply.

    • What is a 1099-R form and under what circumstances should I receive one?

      A 1099-R form is used for tax reporting purposes and is sent to any individual who has withdrawn funds from a retirement plan account.

    • What is a 1099-R form and under what circumstances should I receive one?

      A 1099-R form is used for tax reporting purposes and is sent to any individual who has withdrawn funds from a retirement plan account.

    • When will my 1099-R form be mailed?

      If you had a taxable distribution the 1099-R will be mailed no later than January 31st of the following year.

  • Vesting
    • What does it mean to be fully vested?

      To be fully vested means that when you leave your company, you are entitled to receive all of the money that the company has contributed to your account and any earnings on that money. (Note: You are always fully vested in the money you contribute to the plan and any earnings on that money.)

    • What if I leave my company before I am fully vested?

      If you leave your company before you are fully vested, then you will receive only the vested percentage of your company contribution account. The percentage is based on the plan’s vesting schedule.

    • What is a vesting schedule?

      A vesting schedule is a timeline that shows the percentage of your company contribution account that you are eligible to receive after a specified number of years of service.

  • Withdrawals
    • Are income taxes withheld from a financial hardship withdrawal?

      A financial hardship withdrawal is actually removed from your retirement savings permanently. Unlike a loan, you may not repay this money to your account. Therefore, if you decide to withdraw funds from your account for a financial hardship, you generally must pay regular income taxes on the amount you withdraw. You may elect an amount be withheld for federal income taxes (and some state income taxes) at the time of the withdrawal, but if no election is made, the IRS requires that 10% of the withdrawal be withheld for federal income taxes.

    • Under what circumstances may I make a financial hardship withdrawal?

      A financial hardship withdrawal is generally allowed for six specific reasons:

      1. Expenses for medical care (described in Section 213(d) of the Internal Revenue Code) previously incurred by you, your spouse or your dependent or necessary for you, your spouse or your dependent to obtain medical care;
      2. Costs directly related to the purchase of your principal residence (excluding mortgage payments);
      3. Tuition, related educational fees, and room and board expenses for the next twelve (12) months of post?secondary education for yourself, your spouse or dependent;
      4. Amounts necessary to prevent your eviction from your principal residence or foreclosure on the mortgage of your principal residence;
      5. Payments for burial or funeral expenses for your deceased parent, spouse, children or other dependents; or
      6. Expenses for the repair of damage to your principal residence that would qualify for the casualty deduction under the Internal Revenue Code.
    • What is a financial hardship withdrawal?

      Many plans allow you to withdraw money if you have a financial hardship. Generally, a financial hardship withdrawal is a type of withdrawal that is allowed by the IRS for six specific reasons. The purpose of this type of withdrawal is to alleviate financial difficulties when no other monetary resources are available. For this type of distribution, you may usually only withdraw as much as you have put into the plan (up to the amount of your immediate and heavy financial need). For most plans, any funds that the company has put into your account will not be available for withdrawal.

    • What is an in-service withdrawal?

      Some plans allow participants to withdraw money from the plan before retirement even though they do not qualify for a hardship withdrawal. In some plans, once employees reach age 59½ they may withdraw all or a portion of their account. You may contact your Plan Administrator to find out if your plan allows in-service withdrawals.

    • What kind of documentation is necessary for a financial hardship to be approved?

      The IRS strictly limits the reasons for which you may make a financial hardship withdrawal. Your plan may require documentation concerning the amounts you need to withdraw (for example, medical bills) or your financial information to determine if you qualify for a withdrawal.

Fiduciary Responsibilities

    • Who Is A Fiduciary?

      Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control. Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title.

      A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a company’s board of directors.

      A plan’s fiduciaries will ordinarily include the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials. Attorneys, accountants, and actuaries generally are not fiduciaries when acting solely in their professional capacities. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan.

      A number of decisions are not fiduciary actions but rather are business decisions made by the employer. For example, the decisions to establish a plan, to determine the benefit package, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions not governed by ERISA. When making these decisions, an employer is acting on behalf of its business, not the plan, and, therefore, is not a fiduciary. However, when an employer (or someone hired by the employer) takes steps to implement these decisions, that person is acting on behalf of the plan and, in carrying out these actions, may be a fiduciary.

    • What Is The Significance Of Being A Fiduciary?

      Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include:

      • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
      • Carrying out their duties prudently;
      • Following the plan documents (unless inconsistent with ERISA);
      • Diversifying plan investments; and
      • Paying only reasonable plan expenses.

      The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.

      Following the terms of the plan document is also an important responsibility. The document serves as the foundation for plan operations. Employers will want to be familiar with their plan document, especially when it is drawn up by a third-party service provider, and periodically review the document to make sure it remains current. For example, if a plan official named in the document changes, the plan document must be updated to reflect that change.

      Diversification – another key fiduciary duty – helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, fiduciaries will want to document their evaluation and investment decisions.

    • Limiting Liability

      With these fiduciary responsibilities, there is also potential liability. Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions.

      However, fiduciaries can limit their liability in certain situations. One way fiduciaries can demonstrate that they have carried out their responsibilities properly is by documenting the processes used to carry out their fiduciary responsibilities.

      There are other ways to reduce possible liability. Some plans, such as most 401(k) and profit sharing plans, can be set up to give participants control over the investments in their accounts and limit a fiduciary’s liability for the investment decisions made by the participants. For participants to have control, they must be given the opportunity to choose from a broad range of investment alternatives. Under Labor Department regulations, there must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund, and diversify among the investment alternatives offered. In addition, participants must be given sufficient information to make informed decisions about the options offered under the plan. Participants also must be allowed to give investment instructions at least once a quarter, and perhaps more often if the investment option is volatile.

      Plans that automatically enroll employees can be set up to limit a fiduciary’s liability for any plan losses that are a result of automatically investing participant contributions in certain default investments. There are four types of investment alternatives for default investments as described in Labor Department regulations and an initial notice and annual notice must be provided to participants. Also, participants must have the opportunity to direct their investments to a broad range of other options, and be provided materials on these options to help them do so. (See Resources for further information.)

      However, while a fiduciary may have relief from liability for the specific investment allocations made by participants or automatic investments, the fiduciary retains the responsibility for selecting and monitoring the investment alternatives that are made available under the plan.

      A fiduciary can also hire a service provider or providers to handle fiduciary functions, setting up the agreement so that the person or entity then assumes liability for those functions selected. If an employer appoints an investment manager that is a bank, insurance company, or registered investment adviser, the employer is responsible for the selection of the manager, but is not liable for the individual investment decisions of that manager. However, an employer is required to monitor the manager periodically to assure that it is handling the plan’s investments prudently and in accordance with the appointment.

    • Other Plan Fiduciaries

      A fiduciary should be aware of others who serve as fiduciaries to the same plan, because all fiduciaries have potential liability for the actions of their co-fiduciaries. For example, if a fiduciary knowingly participates in another fiduciary’s breach of responsibility, conceals the breach, or does not act to correct it, that fiduciary is liable as well.

    • What is Fiduciary Responsibility?

      The employer, as Fiduciary of the Plan, has basic responsibilities for sponsoring a retirement plan. In order to meet these responsibilities, employers need to understand some basic rules, specifically with regard to the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage an employee benefit plan and its assets. These responsibilities include, but are not limited to:

      • Acting solely in the interest of the participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
      • Carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with such matters;
      • Following the terms of the Plan documents including, but not limited to:
        • Proper determination of eligibility for enrollment
        • Timely deposits of Plan contributions
        • Fulfilling compliance testing requirements
      • Paying only reasonable Plan expenses
      • Diversifying Plan investments

      For more detailed information, access the DOL brochure, “Meeting Your Fiduciary Responsibilities” at the Department of Labor, EBSA website: Click here.

  • To learn more about TRA’s 3(16) Plan Administration Relief Services (PARS), click here.

Glossary

  • Click a term to open and see its definition.

    • Account Balance

      Amount of funds held in a qualified retirement plan on behalf of an employee eligible for the plan.

    • Adoption Agreement

      The plan document executed by the Employer and the Trustee(s) adopting the plan.

    • Age

      Actual attained age for the plan year during which the plan is adopted and each subsequent plan year.

    • Amortization

      The reduction of a debt through periodic payment.

    • Annuitant

      Any person to whom an annuity payments are being made under the terms of the plan.

    • Beneficiary

      Any individual(s) or legal entity designated to receive any benefit under the plan upon death of a participant.

    • Company Match

      An employer contribution made to a qualified retirement plan that is given to participants who make an employee contribution. An employer may choose to ‘match’ your contribution and contribute to the plan on your behalf. For example, for every $1 you contribute, your employer may add $.50, up to the first 6% of pay that you contribute. Under this scenerio, if you earn $25,000 a year and contribute 6% of your pay to the 401(k) plan ($1,500 annually), your employer would add $750 to your account.

    • Compensation

      Compensation means all of each participant’s wages.

    • Determination Date

      The last day of the plan year or subsequent plan year.

    • Determination Letter

      A document issued by the IRS regarding the qualified status of a retirement plan. If a retirement plan is qualified, monies invested in the plan remain tax-deferred until they are distributed. A determination letter may be issued on the plan’s initial qualification when the plan is first established, or when the plan is ammended or terminated.

    • Distribution

      Payment from a qualified plan made to a participant or participant’s beneficiary.

    • Early Retirement Age

      The earliest date on which, under the plan, a participant could elect to receive retirement benefits. (Note: this may vary in each plan)

    • Elective Deferrals

      Any employer contributions made to the plan at the election of a participant, in lieu of cash compensation, including contributions made pursuant to a salary reduction agreement or other deferral mechanism.

    • Entry Date

      The date as designated in the adoption agreement on which an employee may become an active participant in the plan after meeting the eligibility requirements specified in the adoption agreement.

    • ERISA

      The Employee Retirement Income Security Act of 1974, as ammended.

    • Fiduciary

      Generally, a fiduciary is a person who exercises discretionary control over the assets of another party and has a responsibility to that party. Fiduciaries of qualified retirement plans are sometimes called ERISA fiduciaries. ERISA sets forth strict standards that govern the responsibilities of a fiduciary and the determination of who is a fiduciary.

    • Forfeiture

      The portion of a participant’s account that is not vested.

    • Hours of Service

      Each hour for which an employee is paid, or entitled to payment.

    • Lump Sum Distribution

      A single distribution which represents the total amount due to an individual from their retirement plan.

    • Matching Contribution

      An employer contribution made to a qualified retirement plan that is given to participants who make an employee contribution. An employer may choose to ‘match’ your contribution and contribute to the plan on your behalf. For example, for every $1 you contribute, your employer may add $.50, up to the first 6% of pay that you contribute. Under this scenerio, if you earn $25,000 a year and contribute 6% of your pay to the 401(k) plan ($1,500 annually), your employer would add $750 to your account.

    • Normal Retirement Age (NRA)

      The age at which you can take a retirement distribution from your retirement plan. NRA can vary from plan to plan.

    • Participant

      An employee who has met the eligibility requirements and is therefore covered under the qualified retirement plan sponsored by his or her employer. Once an employee becomes a participant in a 401(k) plan, he or she may elect to make salary deferrals.

    • Plan Document

      The written document setting forth the terms of the employee-sponsored qualified retirement plan.

    • Plan Year

      The period of time as selected in the adoption agreement.

    • QDRO

      A Qualified Domestic Relations Order (QDRO) is a court order that assigns all or a portion of the benefits which would otherwise be payable to a participant under a qualified retirement plan to another person. If the court order does not meet all of the requirements for a QDRO, a plan is prohibited from paying plan benefits to anyone other than the plan participant.

    • Qualified Plan

      Any plan which meets the requirements of Section 401(a) of the Code.

    • Rollover

      Moving money from one tax-qualified plan to another qualified ot individual retirement account in order to prevent immediate tax liability.

    • Salary Deferral

      Voluntary contributions deducted from an employee’s compensation on a pre-tax basis and invested in a qualified retirement plan.

    • Service

      Length of employment with the employer maintaining the plan.

    • Trustee

      The person(s) or corporation having trust powers designated as Trustee in the adoption agreement and any designated successor Trustee.

    • Valuation Date

      The date elected by the employer as of which account balances or accrued benefits are valued.

    • Vested Account Balance

      Amount of funds held in a qualified retirement plan that a participant can receive as a distribution when he or she terminates employment with the employer who sponsors the plan. A participant is always fully vested in his or her salary deferrals and the earnings on those contributions. The vesting for employer contributions and earnings on employer contributions is based on the years of service a participant works for the employer.

    • Withdrawal

      Payment from a qualified retirement plan to a participant who is usually still employed by the employer who sponsors the plan.

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