Q&A Plan Sponsors Ask...

Q: We’re planning ahead for preparation of the plan’s Summary Annual Report. What are the key items that must be included?

A: A Summary Annual Report summarizes information from the plan’s Form 5500. It’s required each year, and generally must be distributed to participants and beneficiaries within nine months after the end of the plan year.

The following information is required:

  • The plan’s formal name, the Employer Identification Number under which the Form 5500 is filed, and the plan year covered by the Form 5500.
  • Financial information, including:
    • Plan expenses
    • Value of plan assets at beginning and end of the 

      plan year, and the amount of increase or decrease 

      in net assets
    • Plan income (employer and employee contributions, gains or losses from the sale of plan assets, and investment earnings)
  • Statement of right to obtain additional information
  • Availability of foreign-language assistance

If your plan is eligible for the small plan audit waiver, you may need to include information about the plan’s fidelity bond and financial institutions where certain plan assets are held.

The Department of Labor has a model Summary Annual Report available on its website.

Q: Is having a Roth contribution feature in our 401(k) plan likely to result in more retirement saving by participants?

A: Roth contributions to 401(k) plans were permitted beginning in 2006. This feature permits participants to make after-tax contributions to 401(k) plans. Those contributions grow tax-free and are not taxed when distributed.

A survey of 500,000 participants by Hewitt Associates found that the average Roth deferral was 6.8 percent of pay; the total contribution rate of Roth users was 10.8 percent. In contrast, the average total contribution rate for the rest of the participants was 8.1 percent.

Nearly 13 percent of new participants chose to make Roth contributions, and almost 17 percent of participants in their 20s did so.

The data in this survey suggest that having a Roth feature would be beneficial to participants. Find out more at http://tinyurl.com/Roth401kFeature.

Q: We just received our first Qualified Domestic Relations Order. What should we know about who an “alternate payee” can be?

A: In a Qualified Domestic Relations Order (QDRO), an alternate payee can be a participant’s spouse or former spouse, child or other dependent. If any other person is named, a QDRO generally isn’t qualified. The Department of Labor allows a limited exception that permits payment to a person who has legal responsibility for an alternate payee, such as a guardian or trustee.

You may, according to the Department of Labor, rely on the qualified status of the alternate payee if that determination has been made by a competent state authority under your state’s domestic relations law.

Keep in mind that an alternate payee can also be a plan participant. Making a distribution to that person does not violate the plan’s distribution rules for participants, even if he or she could not request a plan payout strictly on the basis of his or her status as a plan participant.

Kmotion, Inc., P.O. Box 1456, Tualatin, OR 97062; www.kmotion.com

© 2011 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should always consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.