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How to Efficiently Offer SMAs in 401(k)s   


All 401(k) plans, except for those few using individually designed plan documents, are now in the middle of a required restatement period. The restatement deadline, April 30, 2016, offers an opportunity to prospect new business and to add value to existing relationships.

All retirement plans using pre-approved plan documents (prototypes and volume submitter documents) are required to be restated every six years for law changes. The window during which each restatement is open is two years. When a plan is not restated by the deadline, the employer, and possibly the fiduciaries (generally owners and trustees) become subject to penalties and additional costs. The plan may be subject to disqualification. Each of these options is expensive, and the deadlines should be considered as serious.

For defined contribution plans, including 401(k) plans, profit sharing plans and money purchase pension plans, the restatement window opened the summer of 2014 and will close on April 30, 2016. Now is a perfect time for you to remind clients and prospects of these requirements and to offer suggestions on how to improve their plans. These improvements normally would require plan amendments, which typically involve some cost. These improvements, however, may be incorporated into these restatements, avoiding the separate amendment fee, effectively killing two birds with one stone.

Some questions which can serve as conversation starters for your clients or prospects are:

  • Are there any modifications you wish to make to your plan?
  • Are there any features you would like to add to your plan?
  • Are you interested in seeing whether the plan might be able to do more for you than it’s doing today?

Specific changes that often need review include:

Taking advantage of automatic plan features which may have become available after this plan was established

Automatic enrollment and escalation to move employees toward a more secure retirement,

Improved automatic investment defaults, or

Automatic pay-outs of smaller account balances to minimize longer term plan costs.

Minimizing testing concerns and eliminating refunds to owners and highly compensated employees: