Managing Your Firm's 401(k) Plan A Complete Roadmap to Managing Today's Retirement Plans

by Smith, Matthew X.

• ISBN13: 9780470553008
• ISBN10: 0470553006
• Edition: 1st
• Format: Hardcover
• Copyright: 2010-09-07
• Publisher: Wiley

Summary

Managing Your Firm's 401(k) Plan is written for finance and benefits professionals in the field of creating, managing, and sponsoring employee 401(k) plans. With the current financial and economic downturn, now, more than ever, 401(k) plans are being much more closely observed and adjusted. This book offers a step-by-step guide to building and managing a firm-wide 401(k) plan that meets financial, fiduciary, and regulatory standards. Topics will include: Measuring plan effectiveness Identifying and eliminating conflicts of interest Establishing cost effective operations Creating regulatory and fiduciary procedures Identifying and training plan fiduciaries Obtaining the most from service providers Creating an effective investment policy Selecting and maintaining the plan investment line-up Communicating effectively to employees

Author Biography

MATT SMITH is Senior Vice President, National Defined Contribution Practice Leader, for Aon Consulting in the United States. Prior to his role at Aon, he was managing director of retirement services for Russell Investments. Smith has been involved with the design, implementation, administration, and asset management of defined contribution plans for over twenty-five years. He has written and spoken widely on topics involving defined contribution plans. Smith has been quoted by numerous trade and professional publications, including PlanSponsor, Employee Benefit News, and Pension & Investments.

Table of Contents

Preface	p. ix
Acknowledgments	p. xiii
The Importance of the 401(k) Plan	p. 1
Baby Boomers Have Reached Retirement Age	p. 1
People Are Spending More Years in Retirement	p. 2
Expenses in Retirement Are Increasing	p. 3
The Shift from DB to DC	p. 3
Sharing Responsibility	p. 4
Conclusion	p. 11
The Role of the Employer	p. 12
Why Do Employers Sponsor 401(k) Plans?	p. 12
What Roles Do Employers Play?	p. 13
Conclusion	p. 21
Measuring Retirement Readiness	p. 22
Replacement Ratios	p. 22
Improving Retirement Readiness	p. 28
Conclusion	p. 34
Establishing a 401(k) Plan	p. 35
How a 401(k) Plan Works	p. 35
Establishing Plan Objectives	p. 39
Benchmarking Plan Design Features	p. 41
Plan Setup	p. 43
Conclusion	p. 44
Plan Governance and Fiduciary Issues	p. 45
Who Is a Plan Fiduciary?	p. 46
Basic Fiduciary Duties	p. 49
Allocating or Delegating Fiduciary Responsibility	p. 53
The Prohibited Transactions Rule	p. 57
Exemptions from Prohibited Transaction Rules	p. 59
Establishing Roles and Responsibilities	p. 62
Using Plan Assets to Pay Expenses	p. 66
Communication to Participants	p. 71
Conclusion	p. 71
Protecting Plan Fiduciaries	p. 72
The Impact of Enron Litigation	p. 72
Consequences of a Breach of Fiduciary Duty	p. 76
The Voluntary Fiduciary Correction Program (VFCP)	p. 76
Fidelity Bonds versus Fiduciary Liability Insurance	p. 81
Conclusion	p. 84
Establishing and Managing Plan Investments	p. 85
The Investment Policy Statement	p. 85
The Investment Menu	p. 87
Prediversified Portfolios	p. 88
Portfolio Construction	p. 90
Selection of Investments and Managers	p. 92
Monitoring Investments	p. 94
Complying with Section 404(c)	p. 97
Employer Stock in 401(k) Plans	p. 99
Default Investment Option and Mapping	p. 102
Advice and Education for Plan Participants	p. 105
Brokerage Accounts and Mutual Fund Windows	p. 110
Socially Responsible Investing	p. 111
Conclusion	p. 112
Managing Your Plan's Operations	p. 113
Monitoring Your Service Provider	p. 113
Vendor Services	p. 114
Collecting and Using Vendor Metrics	p. 118
Service Agreements and Standards	p. 119
Operational Compliance	p. 122
Regulatory Compliance	p. 130
Changing Recordkeepers	p. 138
Conclusion	p. 142
Design and Management of Distribution Options	p. 143
Vesting Rules	p. 143
Distributable Events	p. 147
Nondiscrimination Testing Failures and Regulatory Limitations	p. 149
Forms of Distributions	p. 151
Optional Design Features	p. 152
Taxation Considerations	p. 160
Miscellaneous	p. 163
Conclusion	p. 165
How Business Transactions Affect 401(k) Plans	p. 166
Why It Matters	p. 166
Business Mergers and Acquisitions	p. 169
Plan Terminations	p. 186
Divestitures and Downsizing	p. 192
Options for Distressed Organizations	p. 194
Conclusion	p. 195
Financial Communication and Education for Participants	p. 196
Why Do You Offer a 401(k) Plan?	p. 197
Communication Strategy	p. 198
The Implementation Plan	p. 205
Branding your Program	p. 206
Managing Vendor Communications	p. 206
Three Times...Three Ways	p. 207
Conclusion	p. 207
Helping Participants Manage Their Retirement Income	p. 208
In Plan or Out?	p. 208
Risks of Managing Retirement Income	p. 209
Retirement Income Product Types	p. 211
Additional Product Features	p. 220
Conclusion	p. 222
Notes	p. 223
Index	p. 235
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