Time to look at company retirement plans

WITH MILLIONS OF BABY BOOMERS SETTO RETIRE IN the next decade, retirement planning is something that more and more employees are interested in.

This year, employers should take a closer look at their retirement and pension plans as well, thanks to the new Pension Protection Act that took effect Jan. 1.

Hailed as one of the most sweeping reforms of pension law in more than three decades, the PPA requires businesses to make important changes in 401(k) plan design, documents, and administration.

According to Jon Hill, employee benefits manager for Clifton Gunderson Financial Services in Madison, this act starts by completing a little housekeeping in regard to ear lier legislation.

"Many of the provisions of the 2001 Economic Growth and Tax Relief Reconciliation Act, for example, were scheduled to phase in over time and then sunset at a later date," he said. "Congress, in its infinite wisdom, decided that maybe some of the EGTRRA provisions pertaining to retirement plans were beneficial."

Hill added that, for businesses, the PPA has a practical side. "It is legislation designed to make it easier and less complicated to establish, maintain and fund retirement plans."

Some of the major elements to the Pension Protection Act as it relates to employee retirement plans are:

* Vesting: After Jan. 1, all 401 (k) plans will be required to offer vesting on a threeor six-year cycle, a change that Hill said won't have an effect on many employers since many already use a six-year cycle.

* Death Rollovers: Until the act took effect, only a spouse could roll over the deceased's 401(k) tax free. Now, 401(k) account holders have the option of naming a non-spouse to be recipient of the rollover.

* Quarterly Reporting Requirements: Employees who choose to participate in an employer's 401(k) plan in which they are directing their investments, must now receive a quarterly statement that clearly shows the account's value, balance and percentage of vesting, a task that Hill said is relatively easy to implement if a business isn't providing reports on a regular basis.

* Pension Withdrawals: Beginning Jan. 1, workers who have reached the age of 62 can begin withdrawing from their pensions, even while continuing to work. (Withdrawals from 401 (k) plans are still determined by each plan's rules and regulations.)

* Employer Provision of Retirement Planning Advice: Employers can now advise or provide an outside consultant to advise employees on investing their retirement funds.

This final element is one that has, in the past, exposed businesses to potential liability, according to Hill.

"Prior to the Pension Protection Act, there had been very little guidance from the 1RS or the Department of Labor on how and even if advising could be done," he explained. "Employers oftentimes would find themselves unknowingly providing investment advice, such as when an HR person explains investment options, risk/reward trade-offs, asset allocation and so forth to a new hire eligible for a company's retirement plan."

Should a former employee decide to sue based on faulty investment advice, the well-meaning HR person's probable lack of qualifications would be a bull's-eye for potential litigation.

"Now, as long as certain conditions are met, the PPA says the employer can officially bring in outside help to deal with investment advice issues," he said. "This doesn't completely absolve the employer of the fiduciary duties, but it does shift the risk to the advice provider."

If your company hasn't started to review its retirement administration and funding processes, there is still some time.

"The best way for a business to make sure that they are in compliance is to review their plan with their current plan provider," said Hill. "In lieu of that, hire an independent and objective retirement plan expert that has nothing to sell and, for a fee, will provide a plan analysis and comprehensive review with a suggested plan of action."

Laurie Arendt is a contributing editor to Corporate Report Wisconsin. Send comments to focus@wistrails.com.

Copyright Trails Media Group Feb 2007
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