Three reasons to consider using a 401(k) compliance calendar to build your practice
A yearly compliance calendar might be the smartest gift a financial representative can give a 401(k) plan client or prospect. Below are a few good reasons why.
1 Plan sponsors think a lot about their fiduciary and legal duties.
It may not be the flashiest aspect of a service or sales conversation. But, if you want to win the hearts and minds of clients and prospects, let them know that you’re on top of their legal obligations by giving them a chronological list of compliance-related requirements for the coming year. In a 2018 survey of plan sponsor focus issues, keeping plans in compliance ranked a close third in importance behind reducing plan costs and re-evaluating the investment menu.¹
2 Keeping 401(k) plan testing top of mind can improve participation.
An ERISA consultant with John Hancock recently shared a story of a 401(k) client with a high participation rate but a habit of failing their actual deferral percentage (ADP) test each year. By focusing the client’s attention on the significance of the test—which compares highly and less-highly compensated employees’ contribution rates—our consultant and the plan advisor eventually got the green light to act.
After auto sweeping nonparticipants into the plan and modest contributors into the automatic-increase program, participation and deferral rates across the workforce increased and have continued to rise. As our consultant points out, “for five years now, it’s been nothing but passing grades and continually better results.” This represents the power of communicating with clients about compliance.
3 A yearly ERISA calendar shows the value of dependable compliance support
For a plan to run smoothly, thousands of things need to go right, every day of the year. A comprehensive calendar reveals the sustained effort it takes to keep a client’s plan on the proper side of the law (and the regulations):
- The first quarter emphasizes adjusting to new contribution limits, issuing 1099-R forms for the previous year’s distributions, and the returning excess contributions to participants based on an ADP or actual contribution percentage (ACP) testing failure during the previous year.
- The second quarter brings actual ADP/ACP testing, the initiation of MRDs for participants required to take them, and the mandatory deposit of employer contributions.
- The third quarter includes Form 5500 filings and the distribution of annual summary reports.
- Fourth-quarter duties include self-correcting any plan-qualification defects, completing notices and plan amendments for safe harbor plans, and correcting any 410(b) or 401(a) testing failures.
- Then, there are compliance requirements that aren’t bound by a specific date—such as participant fee disclosures, Sarbanes-Oxley blackout notices, updates on summary plan descriptions, and more. Putting them on the calendar helps ensure they’re accomplished.
Of course, there are plenty more tasks involved than what we’ve outlined here. Taking something complex—like compliance duties—and plotting it out in something structured (e.g., a calendar) can help prove your value to your clients. Then, you can keep in touch with brief updates throughout the year, helping your clients understand all that goes into keeping their plan in compliance. This aligns not only with one of their most important priorities, but with one of yours—ensuring you get the recognition, credit, and new opportunities you deserve.
1 “Retirement PlanScape,” Cogent Wealth Reports, May 2018.
Please note that certain products and features may be unavailable for certain plans.
Certain restrictions and conditions may apply.
The content of this document is believed to be accurate and reliable as of the publication date, but may be subject to change. It is not intended to provide investment, tax, or legal advice. Please consult your own independent advisor as to any investment, tax, or legal statements made.
MGTS-40226-GE 9/19-40483 MGR091919499545