Keeping Your 401(k) Distribution Safe & Sound

A Participant requests a distribution, is there an alternative to mailing a paper check?

Yes! Taking a distribution or loan from a 401(k) account can seem to take a lot of time, but did you know an ACH or direct deposit of those funds to a checking or savings account is an option? 

• ACH/ Automatic Clearing House: a secure, nationwide electronic funds transfer network that allows credit and debit entries to personal bank accounts by all U.S. financial institutions. It is an alternative to a written check.
• Direct Deposit: The deposit of electronic funds directly into a bank account as a form of payment rather than a paper check.

An ACH or Direct Deposit of distribution or loan proceeds is reliable and often the quickest delivery option for a 401(k) distribution or loan. 

If a participant does not have a personal checking or savings account it is recommended that he/she sign up for one if planning a distribution of a 401(k) account and want ACH or direct deposit as the delivery method.  If a participant does not have a checking or savings account, a paper check will be the default delivery option.

ACH or Direct Deposit is only allowable into an account that is owned by the Participant!

A general rule every plan sponsor and participant should know - interest in a 401(k) account, including the “vested interest,” may not be alienated. This means that the account interest may not be sold, used as collateral for a loan (other than for a plan loan to the participant), given away or otherwise transferred (except at death to a beneficiary).

Why: The 401(k) plan has to distribute the balance to the participant, so that he/she can be properly taxed on a distribution and the 401(k) plan does not violate the anti-alienation rules. 

Fine Print:
(G) Assignment or Alienation. Except as provided in Code §414(p) relating to QDROs (or a domestic relations order entered into before January 1, 1985) and in Code 401(a) (13) relating to certain voluntary, revocable assignments, judgments and settlements, neither a Participant nor a Beneficiary may anticipate, assign or alienate (either at law or in equity) any benefit provided under the Plan, and the Trustee will not recognize any such anticipation, assignment or alienation. Except as provided by Code §401(a) (13), a benefit under the Plan is not subject to attachment, garnishment, levy, execution or other legal or equitable process.

The participant will need to provide a voided check copy or other proof of ownership to the account your funds are to be electronically transferred to.

Why:  The owner of an account- (if NOT the participant) - has no rights to the money at the time of distribution, so the plan cannot distribute to him/her, even if, the participant wants to transfer the funds to him/her.

I hope this has been informative - explaining why proof of ownership and depositing funds into YOUR checking or savings account is so important!

The Author: Amy Newman

Lead Transaction Support Associate
abgncs.com

anewman@abg-mn.com

‘Tis the Season – For Annual Notice Distribution

For many people this time of the year is spent coordinating Thanksgiving cooking with family members, and laying out a plan of attack for their Black Friday shopping. But for plan sponsors of qualified retirement plans some time should be spent on ensuring any, and all annual notices are distributed to plan participants.

Qualified retirement plans with a December 31^st plan year end may need to issue one or more annual notices to plan participants by December 1^st. Failure to issue a required annual notice can put the plan’s qualified status in jeopardy. Below you will find the most common notices applicable to defined contribution plans:

-        401(k) Safe Harbor Notice:  All eligible participants in a safe harbor 401(k) plan must receive an annual notice that describes the safe harbor matching contribution formula or safe harbor non-elective contribution formula.

-        401(k) Automatic Enrollment Notice: If the plan provides that employees will be automatically enrolled, the plan sponsor must give eligible participants an annual notice that describes the circumstances in which eligible employees are automatically enrolled and the level of pay that will be automatically contributed to the plan.

-        Qualified Default Investment Alternative Notice (QDIA): A defined contribution plan that permits participants to direct the investment of their account balances may provide that if a participant does not give an affirmative investment direction, the portion of the account balance that is not given direction will be invested in a qualified default investment.  

Alliance Benefit Group North Central States, Inc. understands that this may seem like a daunting task for plan sponsors. Because of this, led by our Compliance Team, ABGNCS packages all required notices with delivery instructions in the “year end packet”. In addition, ABGNCS assigns a dedicated administration team to each plan in order to assist plan sponsors with administration questions.

To learn more about Alliance Benefit Group North Central States, Inc. and the services we provide please visit www.abgncs.com or email info@abg-mn.com. 

Happy Holidays! 

The Author: Seth Holstad

Account Executive

www.abgncs.com/RetirementAdministration.aspx

sholstad@abg-mn.com

How a Required Minimum Distribution (RMD) Works

There comes a point where the IRS requires that a participant or beneficiary must take funds out of a retirement plan or risk significant excise taxes.  This is referred to as a Required Minimum Distribution (RMD) and is required within a certain period following the participant’s attainment of age 70 ½, or if later, the year in which the participant retires.  However, if the participant is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the participant is age 70 ½, regardless of whether the participant is retired.  This affects participants in qualified plans, 403(b) plans, 457 plans, and IRA owners (including SEPs, SARSEPs and SIMPLE IRAs).

The first RMD must be taken for the year in which the participant turns age 70 ½.  RMDs are required to be taken by December 31^st, however, the first payment can be delayed until April 1^st of the year following the year that a participant attains age 70 ½.   Of note, if a participant delays his or her first payment to April 1^st, there will be two payments required in that year – the second payment will be required by December 31^st that same year.  

RMDs are calculated by dividing the prior December 31^st account balance by the life expectancy factor in the IRS published Tables.  A participant can request a distribution that is higher than the RMD amount, however, if the participant fails to withdraw a RMD, fails to withdraw the full required amount, or misses the deadline for withdrawal, the amount not withdrawn is taxed at 50%.

Although the IRA custodian or retirement plan administrator may calculate the RMD amount, the participant is ultimately responsible for calculating the amount of the RMD.  Required Minimum Distribution amounts cannot be rolled over into another tax-deferred account. 

Please consult your tax advisor with questions surrounding RMDs or visit the IRS website and other useful industry resources via http://www.abgncs.com/RetirementIndustryLinks.aspx. 

The Author: Patty Richeson, QKA

Wholesale Retirement Plan Consultant

www.abgncs.com/RetirementAdministration.aspx

pricheson@abg-mn.com

Retirement Autopilot

To do more to help employees save for their future, many employers are incorporating automatic features into their retirement plans. These features can help employees start saving earlier, save in greater amounts and manage their savings more wisely, while also allowing employees to manage their own investments. Studies suggest that automating retirement plans significantly increase the percent of eligible workers who participate in such plans, which increases employees’ retirement savings and financial security.

So what are these automatic features?  And how do they work?

Automatic Enrollment is an automatic contribution arrangement (ACA) that can be used as a feature in a retirement plan to allow employers to enroll employees in the company’s plan automatically upon meeting eligibility requirements. Approximately 30% of eligible workers do not participate in their employer’s retirement plan. Studies suggest that automatic enrollment could reduce this rate to less than 15 percent, significantly increasing retirement savings.

Automatic Escalation is another plan design option which may be added to a retirement plan in conjunction with automatic enrollment.  Automatic escalation allows a plan sponsor to increase participant deferrals annually by a set increment, most commonly 1%. Plan sponsors electing this design feature typically do so to assist their employees with retirement readiness.

Whether you already have a retirement plan or are considering starting one, automatic features offer many advantages.  Learn more about these automation options here: http://www.abgncs.com/AutoFeatures.aspx.

The Author: Abby Murray

Interactive Media Coordinator

www.abgncs.com

info@abg-mn.com

What is the Difference Between Retirement Plan Administration and Recordkeeping?

In the world of retirement plans, oftentimes, plan administration and recordkeeping are two words used interchangeably.  However, they represent separate and distinct services.

Third party administration (TPA) is the actual testing and compliance services provided on a retirement plan (legal document work can be included in TPA services, as well).

Recordkeeping services, on the other hand, are the accounting functions on a retirement plan at the group level all the way down to the participant level.  Recordkeeping also involves the services associated with the plan sponsor/participant website and voice response unit (VRU) access.

As a service provider in the retirement plan industry, TPA and recordkeeping services can be provided by the same organization.  In addition, there are providers that specialize in only TPA services and others specializing in recordkeeping-only services.  

Ultimately, the plan sponsor must to determine the best fit provider to help maximize the success of their retirement program.

The Author: Tim Struck, CRPS

Wholesale Retirement Plan Consultant

http://www.abgncs.com/RetirementAdministration.aspx

tstruck@abg-mn.com