OK – with a new year upon us it’s time to clean up that rusty old 401(k) plan at your small business….right? Let’s say that you work in or own a small business, and are responsible for operating the company’s 401(k) plan. To put it lightly, it’s probably a massive nuisance.
401(k) plans can be a wonderful benefit to your employees AND a great opportunity for you to put more money away for retirement in a tax deferred account. But as you may now, operating a plan can be a real bear.
I’ll be covering the finer points of operating small business retirement plans throughout the year. Today’s post will focus on what to do with departed employees. Employees will come and go to and from your business over time (hopefully not too often), and it’s not uncommon for them to leave money they’ve accumulated in your company’s qualified retirement plan.
ERISA & Fiduciary Responsibility
As you probably know, departed employees always have the opportunity to pull their money from your plan after they leave, either directly or via a trustee to trustee rollover. But many employees neglect to do so. Whether it’s because they don’t know how, don’t care, or are simply lazy, it’s very common for departed employees to “accumulate” in your 401(k) plan, long after leaving the company for greener pastures.
As you also know, as the sponsor of a qualified retirement plan you have certain fiduciary responsibilities when it comes to managing the plan on behalf of your participants. It’s for this reason – fear of repercussion – that many sponsors feel stuck when it comes to managing assets of employees who long ago left the company.
Fortunately for you, ERISA was not written with the sole intention of making your life hell. There are six safe harbors written into the law that free you from fiduciary responsibility if you follow a few step by step instructions. And one of them conveniently covers departed employees.