Plan Sponsors Ask…

Q: What are the risks of losing track of a plan participant? There are a few people who remain “on the books,” in spite  of trying many times  to reach them?

A: That’s an important question  because  there are serious potential consequences. Losing track of a participant can be considered a breach of fiduciary duty, according to a 2014 Field Assistance Bulletin from the Department of Labor. Plan sponsors must be diligent in their attempts to contact  participants  with a vested account  using a variety of tools, including certified mail, checking all plan and employer records, sending an inquiry to the designated beneficiary, and using free electronic search tools. In cases where the participant  remains missing, the plan must consider additional methods of locating them,  such as a commercial locator service, crediting reporting  agencies, and investigation databases. If the plan fails to locate a participant  and hasn’t taken proper steps to do so, there is a potential  for the plan to be disqualified. We suggest you read more on this topic in the DOL’s Field Assistance Bulletin mentioned above (https://tinyurl.com/DOL-FAB-201401) and in this letter to the DOL from the American Benefits Council (https://tinyurl.com/ABC-DOL-letter).

Q: We had two participants leave our company this year with  outstanding 401(k) plan loans.  We’ve  heard the  tax law  passed in December 2017  may impact those loans.  What can you  tell us?

A: You heard  right; there  is a provision in the Tax Cuts and Jobs Act passed December  22, 2017,  that  affects plan participants who terminate employment with an outstanding loan. Before passage  of the law, the loan would have been due immediately. Former employees  who could not repay the loan within 60 days would have the outstanding balance  deducted from their account  balance and treated as a taxable distribution.  The Tax Cuts and Jobs Act included a provision extending  the repayment due date.  Now, to avoid inclusion of the outstanding balance in taxable income, the loan must be repaid by the date the participant’s  federal income tax is due. There are a few important housekeeping items associated  with this change. If your plan allows loans, be sure to update the plan document, the plan’s loan policy and the required notice of rollover eligibility so they reflect the update.

Q: Sometimes employees ask us for advice  about how much of their income they  should be saving for retirement, how much they  should already  have saved, and how much they  will need. Of course, we don’t  give  blanket answers. But we  would like to pass along some resources, either  directly  or through our plan communications, so they  can educate themselves. Can you suggest some?

A: We’re glad that  you aren’t trying to give one-size-fits-all answers  to these  important questions,  and that  you’re interested in helping participants  learn more. There are some great  resources available online, and you may want to share them  with your participants  as you communicate about  the plan. Be cautious in your communication, though, because  the ideas presented by one provider or expert can vary widely when compared to another source. You do not want it to appear  that  you are endorsing  any particular source — unless you have the backing of the plan’s counsel and a full understanding that  that’s what you’re doing.

In a quick online search, we turned  up resources  from www.investopedia.com, www.nerdwallet.com, money.cnn.com, www.aarp.org, and The Motley Fool, among  many others.  Your plan provider likely has calculators available for participants,  along with a variety of other tools. Take advantage of them.  Even the IRS has resources  that  can help, at https://tinyurl.com/IRS-resources.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon  City, OR 97045; 877-306-5055; www.kmotion.com

© 2018  Kmotion, Inc. This newsletter is a publication  of Kmotion, Inc., whose role is solely that  of publisher.  The articles and opinions in this publication are for general  information  only and are not intended to provide tax or legal advice or recommendations for any particular situation  or type of retirement plan. Nothing in this publication  should be construed as legal or tax guidance, nor as the sole authority  on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors  should always consult the plan’s legal counsel or tax advisor for advice regarding  plan-specific issues.