Retirement Plans & Planning – Know your Responsibilities

Many physicians and dentists who maintain an independent practice have learned that sponsoring a qualified retirement plan through their business can be a great savings tool.

Even though the stock market hasn’t performed as they might have desired over the past several years, doctors and owners of healthcare businesses are still able to put good sums of money into their “nest egg” for retirement and I have seen their personal balances become one of their major personal assets contained in their overall personal net worth.   Retirement plans are certainly a great resource for any business where the owner wishes to provide a means for saving money for the future, deferring tax obligations, and providing employees with a great benefit.  However, just like many things in the business of Healthcare, if you don’t comply with the rules and regulations set forth by governmental agencies, in this case the Internal Revenue Service (IRS) and Department of Labor (DOL), you could find yourself facing a governmental agency audit or a lawsuit brought on by a disgruntled employee participant in your plan.

As a sponsor of a retirement plan, you are responsible for making sure that your plan is administered properly.  You have obligations to provide some information automatically to each plan participant and to each beneficiary who is receiving benefits, while other materials are to be provided to participants and beneficiaries only upon their request.  Also, certain materials must be made available for inspection at reasonable times and places.  The following is a general and basic listing of some of the items that you should be aware of as a plan Sponsor.

  • Summary Annual Report – Narrative summary of the financial statements contained on the tax return Form 5500.
  • Summary Plan Description – Primary document for informing participants and beneficiaries about the plan and how it operates.  This document must be written in a language understandable by the average plan participant so that they can comprehend their rights and obligations under the plan.
  • Participant Benefit Statement – A statement of the accrued and non-forfeitable benefits to which a participant is entitled.  Additional information may need to be provided depending upon the type of plan that is in place.
  • Notification of Intent to Use Safe Harbor Notice – This notice, which summarizes the participants rights and obligations under the plan including the matching of non-elective contribution formula, and how and when to make deferral elections, must be given to participants not less than 30 days or more than 90 days prior to the beginning of each plan year.
  • Summary of Material Modifications – This is a document that describes material modifications to a plan and any change required to be in the Summary Plan Description.

In addition to the above items, trust agreements, contracts, or other instruments under which the plan is established or operated must be made available for inspection.

In February of this year, the Department of Labor issued a set of final regulations, to what is known as the Participant Fee Disclosure Regulations, which have an impact on 401(k) and 403(b) plans where participants have the ability to direct all or a portion of their investment.  The Department of Labor wants to ensure that participants with self-directed account plans have the information they need regarding their rights and responsibilities in managing their accounts, and that they are provided sufficient information about the plan itself, the designated investment alternatives, and fees to make informed decisions about the management of their account.  For calendar year plans beginning in 2012, these new regulations apply to all participant-directed defined contribution plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA).

The fiduciary duty to follow these regulations has been placed upon the plan administrator, defined in the final regulations as the fiduciary with authority to cause the plan to enter into, or extend or renew, a contract arrangement for the provision of services to the plan.  In other words, as the Plan Sponsor, you are ultimately responsible for complying with these regulations just as you have been for many preceding regulations, which are often quite lengthy and complex as is the case with this set of regulations.   Currently there is no penalty imposed for failure to follow these regulations, however, as stated previously, the consequences of a breach in your fiduciary liability may result in legal action maintained by the DOL or a participant in your plan.

Most investment companies that represent plans have been working on the necessary disclosure requirements and should be issuing this information to you this month if they have not done so already.  Plan Sponsors that rely on this information in good faith will not be liable for the completeness and accuracy of the information used to satisfy the disclosure requirements.  Keep in mind, however, that you are ultimately responsible for providing this information to your participants if your investment company does not supply you with the information.  And for plans that maintain several designated investment alternatives, this process may not be covered by one particular investment company which will create complexity to this process.

Under these new regulations, an initial notice must be provided to each participant or beneficiary on or before the first date the person can first direct his or her investments and then annually thereafter.  The following is a listing of the disclosures required:

1)     General Disclosures
a)      How the participant and beneficiaries may give investment instructions.
b)     Any limitations of such instructions, including and restrictions on transfer to or from a designated investment alternative.
c)      Any plan provisions relating to the exercise of voting, tender, and similar rights.
d)     The designated investment alternatives offered under the plan.
e)      Any brokerage windows, self-directed brokerage accounts, or similar arrangements that enable the selection of investments beyond those designated by the plan.
2)     Administrative Expenses
a)      An explanation of any expenses or fees for general administrative services that may be charged to or deducted from all individual accounts and are not reflected in the total operating expenses of any designated investment alternative.
b)     A description of the basis on which these fees will be allocated.
3)     Individual Expenses – an explanation of any fees that will be charged to an individual account rather than on a plan-wide basis.
4)     Investment Related Disclosures
a)      The information must be provided for each investment alternative under the plan.
b)     The name and category of each investment.
c)      The performance data on each investment.
d)     Benchmark returns for each investment option based upon the appropriate broad market index on one, five, and ten year periods.
e)      The amount and description of each shareholder type fee against a participant’s investment.
f)       The total operating expense for each investment expressed as a percentage.
g)     A statement indicating that the cumulative effect of fees can substantially reduce the growth of the account.
h)     A statement that fees are only one of the several factors to consider in making investment decisions.
i)      The address of an Internet website that is sufficiently specific to provide participants information about the investment alternatives.
j)      A glossary of general terms.
k)     Fixed investment and annuity disclosures.
l)      Upon request, a paper copy of the website information is available.

In addition to the above disclosures, on a quarterly basis certain disclosures must be provided to plan participants no later than the 45th day following the end of a quarter.  These additional provisions include:

1)     The dollar amount of any plan administrative fees actually charged during the preceding quarter.
2)     The dollar amount of any individual fees and expenses charged to the participant’s account during the preceding quarter.
3)     A description of the services to which the fees relate.
4)     The amount and nature of any administrative expenses paid from total operating expenses of the plan’s investment options.
Be sure that your company’s Retirement Plan continues to work well for “your tomorrow” by planning and making certain that you are fulfilling your responsibilities today.
Mike DeVries is a CERTIFIED FINANCIAL PLANNER ™ and a Certified Healthcare Business Consultant focusing on helping healthcare professionals. If you would like to learn more about becoming a client of Mike’s, contact him at

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