Retirement plan distribution options can be complicated for employers, but not nearly as complicated as they can be for plan participants or their beneficiaries. Management may not be in tune with just how important it is to understand and administer their retirement plan when so many of plan responsibilities are outsourced to outside vendors. In order to avoid fines and penalties assessed by the IRS and Department of Labor, plan provisions must be properly administrated and communicated by employers. Most importantly, though, employers should be committed to providing accurate information to their employees as a standard practice.
The majority of most Americans’ retirement savings are tied up in company-sponsored retirement plans, and yet there is very little understanding of how to properly structure plan distributions when they are needed. This phenomenon is further complicated by the fact that the human resources staff charged with helping participants access their benefits oftentimes don’t truly understand the distribution options either. Employers will argue that they have hired many credentialed outside advisors to assist participants when it is time to access their plan benefits, but it’s an unfortunate truth that not all plan advisors are satisfactorily knowledgeable and may be highly motivated to get an unsophisticated individual to move their retirement benefit into a product that pays high commissions, but doesn’t meet their future needs.
This scenario plays out every day across the United States. A member of a family unexpectedly becomes seriously ill and their family has to quickly figure out the best way to access their assets, including their retirement plan benefits. The employer’s local human resources representative doesn’t really understand the retirement plan in great detail and can do nothing more than refer the family of the ill participant to the plan’s local financial services representative. The financial services representative makes a recommendation and, in too many cases, the family has no idea if it is best for their particular situation. The family follows the recommendation of the advisor, only to find out that the investment has maximum annual withdraw restrictions. The family ultimately may need to withdraw much more than the maximum, but in doing so, incurs a substantial penalty.
In the end, it is the responsibility of plan participants to understand their options, but employers have an ethical and fiduciary duty to make sure their representatives can clearly articulate the plan’s provisions and ensure that their plan advisors are operating in the participants’ best interests. For most people, these are very confusing decisions that often need to be made under the most difficult of emotional situations. Some families are fortunate enough to have a family member that has a financial background or maybe even someone who works in the retirement plan area on a daily basis, but most families do not. Employers can avoid compliance issues and demonstrate their commitment to their valued employees by helping them make informed choices presented by knowledgeable plan experts.
If you would like assistance with gaining a better understanding of your retirement plan’s distribution option please feel free to contact Mindy Jones or Mark Flanagan of Aronson’s Employee Benefit Plan Services Group at 301.231.6200.
About the Authors:
Mindy Jones is a Senior Accountant in Aronson LLC’s Employee Benefit Plan Services Group, where she provides comprehensive audit and assurance services to employee benefit plans that include defined contribution plans, defined benefit plans, and health and welfare plans, with assets ranging from $200,000 to over $200 million.
As a director in Aronson’s Employee Benefit Plan Services Group, Mark Flanagan has over 20 years of experience in the compliance and technical aspects of qualified and non-qualified benefit plans, including plan design, consulting, and technical administration. He serves as a key member of the firm’s benefit plan audit practice as a compliance resource for the audit teams and plan sponsors. .