As a business owner, you are responsible for organizing your 401(k) plan documents and records. Being proactive in managing a 401(k) can save you a lot of pain later on. Aside from administrative duties, you also have to deal with investment management. All these make understanding and organizing 401(k) plan documents and records all the more critical.
The Main 401(k) Plan Documents and Records
Being a plan sponsor or administrator, you must keep documentation for compliance and reference. The most important documents for you to preserve are:
Plan Document (PD)
A plan document is a comprehensive explanation of all the possible adoption of the plan within the IRS determination letter. This document includes important details like eligibility requirements, elective deferral, employer contributions, vesting, and profit-sharing features.
Summary Plan Description (SPD)
The summary plan description (SPD) is a summarized form of the plan document written in a language understandable for the employee and beneficiaries. It contains all the features stated in the plan document.
Summary Annual Report (SAR)
This report is a summary of all the details written on Form 5500 for the purpose of plan participants. As a form of compliance, the summary annual report must have a plan’s total asset value, plan contributions, administrative expenses, and the benefits received by the participant. ERISA requires plan administrators to distribute the SAR within nine months after the closing of the plan year, two months after the deadline for Form 5500. Those who fail to provide this will have to pay fines over $100,000, 10-year imprisonment, or both.
401(k) Adoption Agreement
A 401(k) adoption agreement contains the plan’s specific features. Accurate preparation of this document is necessary since it includes crucial details about the plan’s ruling on eligibility, enrollment features, contributions, and distribution allowances.
ERISA Fidelity Bond
As mandated by ERISA, every individual who handles plan funds must have a bond. This mandate means that each fiduciary and administrator of a retirement plan must have a bond. These bonds serve as a cover for the plan from losses due to dishonesty or fraud. The Fidelity Bond is 10% of the plan assets totaling $500,000. It is mandatory to keep a record of the Fidelity Bond with the plan documents.
Hardship Withdrawals and Participant Loans
When a plan participant undergoes financial challenges that cannot be addressed without getting funds from the retirement account, they can make hardship withdrawals or avail of participant loans. When this happens, you have to make thorough documentation as ERISA has a massive list of requirements and conditions for this.
IRS Determination Letter
The IRS determination letter acts as approval from the IRS. This letter states that the plan sponsor, at the time of the review, met the qualification and legal requirements. It can also serve as proof that you are compliant with the tax code.
A requirement by ERISA, fee disclosures are documents in which plan sponsors must divulge any individual, administrative, or investment fees incurred to the plan participants.
This document is necessary and applicable if you’ve made any changes in the adoption agreement or there were existing changes in the 401(k) tax laws. Remember, you have to include the most updated features of your 401(k) in this document.
How Long Do You Keep 401(k) Plan Documents and Records?
According to the Internal Revenue Code and Income Tax Regulation and ERISA, plan sponsors must keep plan records because they are useful in administering pension laws.
Ideally, you must safekeep 401(k) documents and records at least six to seven years after the filing date of the creation of Form 5500 from the said records. However, it is advisable to keep documents relating to a participant’s claim much longer.
How Do Your Organize 401(k) Plan Documents and Records?
In general, 401(k) plan documents and records must be kept in three sets of files: Plan Document File, Participant File, and Plan Year File.
Plan Document File
This file must include all of the operating documents of the plan. Documents to include in this file are:
- Plan Documents – base document, IRS determination letter, an adoption agreement
- Participant Disclosures – SPD, Summary of Material Modification (SMM)
- Corporate Actions – minutes, agendas
- Service Agreements – plan service contracts
- Fee Disclosures
- ERISA Fidelity Bond
This file must have all forms given by the plan participants. These forms are usually those that required the plan sponsor to take action on behalf of the participant. Documents must include:
- Beneficiary Designation Forms
- Distribution Request Forms (including supporting documentation)
- Investment Election Change Forms
- Loan Request Forms
- Participant Deferral Election Forms
- Payroll Records
- QDRO Split Requests (including supporting documentation)
- Rollover Requests
Plan Year File
This file must contain all the vital records pertaining to a plan year. So, it is necessary to have a separate plan year file for each year. This file must include:
- Annual Valuation
- Annual Trustee Report
- Annual Nondiscrimination Testing
- Annual Participant Notices
- Form 5500
- Independent Audit Report
- Summary Annual Report
Seriously document everything. As a responsible business owner, you have to be defensive in every decision you make for your company. If possible, keep a record of each and every transaction you make with your employees, particularly communications about eligibility and plan information. Documentario is your proof that you are compliant and that you accomplish them within the due dates.