Retirement plans add to business owner responsibilities

Failure to live up to the terms of your agreement could prove costly for your business.

There are several issues to consider when starting a retirement plan.

• Record retention. The law governing qualified retirement plans requires plan sponsors to retain all plan-related materials for at least six years after the filing date. In addition, these documents need to be preserved in such a way that they are readily accessible for easy retrieval. Records that are lost, stolen or destroyed before the six-year period expires would need to be recreated in short order, should the Department of Labor request them.

In some cases, you may be able to contract with outside firms to provide certain reports and prepare specific documents. But the responsibility to retain supporting records for these filings ultimately lies with the business owner.

The list of documents that must be retained is lengthy, so make sure you have a good grasp on what needs to be saved and how it will be organized.

• Employee notice distribution. To comply with the Employee Retirement Income Security Act, commonly referred to as ERISA – which regulates the operation of private pensions and benefit plans – employers must distribute to employees certain important documents. If applicable, these may include such items as blackout notices, enrollment material, summary plan descriptions and summary annual reports, just to name a few.

If these are not sent out in a timely manner, the business could incur substantial penalties.

To avoid penalties, the plan’s administrator or record-keeper should provide you, as the business owner, with the applicable required notices and instructions for their distribution.

• Prudent investment choices. In most types of qualified retirement plans, the underlying investments help participants work toward their retirement goals. As a result, ERISA requires that companies make prudent investment decisions for the sole benefit of all plan participants and that investments are diversified to help reduce the risk of large losses. Although it’s not required, ERISA strongly encourages companies to develop written investment policy statements. The policy should provide a clear statement of the plan’s investment objectives to help identify appropriate investments and provide standards for regularly evaluating investment choices.

• Timely salary deferral deposits. Salary deferrals withheld from employees’ paychecks must be deposited into the retirement plan as soon as reasonably possible, per DOL regulations.

Work with your payroll department – or with your outside payroll provider – to make sure that salary deferral contributions are deposited with the plan custodian immediately after being withheld. The standard deadline is the 15th business day of the month following the month in which money was withheld, but the DOL has implemented fines for businesses that it believes failed to make deposits quickly enough.

These are just some of the main issues to consider when thinking about adding a retirement plan, and there are clearly plenty of details that must be coordinated. Working with financial consultants, business owners can establish plans that can benefit employees and provide companies with another attractive compensation element.

Timothy M. Reese is senior vice president-investments with A.G. Edwards & Sons Inc. Member SIPC. He can be reached at timothy.reese@agedwards.com.[[In-content Ad]]