Spring cleaning. Some look forward to it, others dread it. If we’re honest, the more thorough we are with our spring cleaning, the better off we are throughout the year. We recently published a post explaining the benefits of rolling money out of the plan for terminating participants. Now, it’s the plan sponsor’s turn. It’s time to take a Swiffer to your retirement plan and clean out the remaining balances of terminated participants.
Why is it important to declutter your plan?
As the plan sponsor, you have a fiduciary responsibility to monitor the assets held in the plan and prudently act on your participants’ behalf. Those responsibilities apply to terminated participants with account balances in the plan. Yes, you read correctly. An employee’s termination does not erase your fiduciary duty as it relates to the funds in their accounts. They are required to receive benefit statements and plan disclosures. On top of that, depending on your service provider’s fee structure, you may be paying a per-participant fee to maintain their account in the plan.
Potential fees you pay for terminated participants with accounts balances:
- Record keeper per participants fees
- TPA Participant Fees
- Form 8955-SSA Preparation Fees
Dealing with terminated employees who have balances remaining in your 401(k) plan can be a complicated undertaking. Tracking down each participant is the first challenge. This can be made even more difficult if they’ve been gone for a long time. Once you find them, you must notify them of their distribution options and monitor whether or not they respond. If they do not respond, you must determine whether or not they can be forced out of your plan via a cash-out or rollover distribution. If they can, then you must force them out and follow the terms of your plan document.
Make this process less stressful by having and following a specific procedure relating to your retirement plan when an employee leaves.
Our February Newsletter offers a thorough “How To” on dealing with uncashed distribution checks and missing participants. Before the participants go missing, why not declutter your plan and create a follow-up procedure to keep track of participants before they go?
You now have a shining plan with processes in place to handle any terminating participants in the future. If you suspect your plan includes terminated participant accounts, contact your advisor and TPA today to strategize your next steps!