By Jeff Chang
If you are responsible for the administration of a public agency 457(b) or 401(a) plan, you know that these tax-favored plans are complicated and subject to myriad rules and requirements found in the plan document, the Internal Revenue Code (and related IRS guidance), and applicable state law (e.g., the California Constitution and Government Code, for California agencies). Although many people are intimidated by the typical sixty-plus-page plan document on their credenzas, those who serve as designated plan administrators and fiduciaries need to understand that the plan document often is just the beginning – the “quick-start guide.”
A careful reading of your plan document, along with an appreciation of all of the duties and responsibilities of a plan administrator, will soon reveal that there are many, many aspects of proper plan administration that are not spelled-out in sufficient detail in your plan document. Some of these supplemental explanations are for “internal” use by the plan administrator and plan vendors, while other supplements are to be shared with participants and beneficiaries to help them understand how the plan works. Depending on the features of your plan, here are a few of the policies and procedures you are likely to need:
- One that addresses plan documents and records maintenance and retention;
- One dealing with the maintenance and update of participant information;
- One explaining to participants how the plan will comply with “ERISA section 404(c) rules,” if the plan is participant-directed;
- One that identifies the party(ies) responsible for selecting the plan’s investment menu, and the principles underlying such selection;
- One that deals with participant enrollment, completion of deferral elections (if applicable), beneficiary designations, and spousal consents (if applicable);
- One spelling out participant loan procedures;
- One explaining unforeseeable emergency hardship distributions (if offered);
- One explaining to participants how benefits are handled by the plan in divorce (and pre-divorce) situations;
- One explaining how the administrator will evaluate and make determinations with respect to domestic relations orders submitted to the plan – often referred to as a QDRO Procedure;
- One detailing for participants the plan’s claims procedures;
- One explaining how and when participants can receive their benefits and what payment options may be available;
- One explaining to family members and named beneficiaries what happens upon the death of a participant; and
- One describing the plan’s policies and procedures for locating lost or missing participants.
If your plan has need for some or all of these policies and procedures (and most plans do), you should ask to see what your plan consultants and recordkeepers can provide. However, you should not assume that their “off-the-shelf” policies are going to work for your plan, participants and organization without considerable customization. Many of the template policies and procedures provided by consultants and recordkeepers tend to be more ‘technical” because they also serve as legal guides and compliance checklists for the plan administrator. In order for a plan to be truly successful and appreciated by the participants, it will need to have some policies and procedures that are “outward facing” to the participants – ones that explain in simple language how various aspects of the plan work.
Of course, your worst “nightmare” is to have a plan “breakdown” in the middle of nowhere and to realize that all you have in the glove box is a “quick-start guide.”
Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at firstname.lastname@example.org or (916) 329-3685.