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Necessary Controls for 401(k) Plan Distributions

Published by Kim Moore on Aug 17, 2020 6:00:00 AM

When you’re the Administrator of a 401(k) Plan, you have a fiduciary responsibility to your Plan and its participants, which covers all aspects of the Plans administration. It’s common for a Plan administrator to rely on the Plan’s service providers to oversee distributions and loans. Although this is convenient, it does not relieve the Plan fiduciaries of their responsibilities. It is recommended that all Plan administrators use the following procedures related to the plan distributions:

  1. As part of processing, review all distributions. Per the Plan Document requirements, confirm that a participant is entitled to receive a distribution. Make certain the plan record-keeper is calculating vesting and tax withholding for the distribution.presenting_to_audience_22423

  2. Develop a checklist that covers items that you need to address as part of the exit process when an employee terminates service from your company. Include distribution options and a review of any Plan loans held by the participant.

  3. Review Plan loans when they are initiated to ensure the amount requested is allowed per the Plan Document. Confirm your payroll process is set up to initiate the loan repayments per the amortization schedule and that the schedule is set up to mirror your payroll timing.

  4. Regularly review outstanding participant loans to ensure the repayments are current. Any loans that have not had regular repayments should be reviewed with your service provider for potential default procedures.

  5. Review the process for notifying participants of the required minimum distribution requirements with your service provider. Confirm these distributions are being handled appropriately.

  6. Discuss the tax withholding and 1099R process with your service provider to ensure they are addressing these requirements appropriately.

  7. The rules regarding hardship withdrawals from a 401(k) Plan are changing. We will address these distributions in a future blog post.

We understand that you may have limited knowledge with regard to 401(k) processing, but you are not allowed to outsource your fiduciary responsibilities to your service providers. Some time spent reviewing the above items can help ensure Plan administration is being handled appropriately.

401(k) plans can be very complex, so it’s vital that you hire an experienced auditor to ensure your plan is in compliance. At Summit CPA we specialize in retirement plan audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine.  We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.

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