Managing Your Firm's 401(k) Plan

MATT SMITH is Senior Vice President, National Defined Contribution Practice Leader, for Aon Consulting in the United States. Prior to his role at Aon, he was managing director of retirement services for Russell Investments. Smith has been involved with the design, implementation, administration, and asset management of defined contribution plans for over twenty-five years. He has written and spoken widely on topics involving defined contribution plans. Smith has been quoted by numerous trade and professional publications, including PlanSponsor, Employee Benefit News, and Pension & Investments.

• Preface ixAcknowledgments xiiiChapter 1 The Importance of the 401(k) Plan 1Baby Boomers Have Reached Retirement Age 1People Are Spending More Years in Retirement 2Expenses in Retirement Are Increasing 3The Shift from DB to dc 3Sharing Responsibility 4Conclusion 11Chapter 2 The Role of the Employer 12Why Do Employers Sponsor 401(k) Plans? 12What Roles Do Employers Play? 13Conclusion 21Chapter 3 Measuring Retirement Readiness 22Replacement Ratios 22Improving Retirement Readiness 28Conclusion 34Chapter 4 Establishing a 401(k) Plan 35How a 401(k) Plan Works 35Establishing Plan Objectives 39Benchmarking Plan Design Features 41Plan Setup 43Conclusion 44Chapter 5 Plan Governance and Fiduciary Issues 45Who Is a Plan Fiduciary? 46Basic Fiduciary Duties 49Allocating or Delegating Fiduciary Responsibility 53The Prohibited Transactions Rule 57Exemptions from Prohibited Transaction Rules 59Establishing Roles and Responsibilities 62Using Plan Assets to Pay Expenses 66Communication to Participants 71Conclusion 71Chapter 6 Protecting Plan Fiduciaries 72The Impact of Enron Litigation 72Consequences of a Breach of Fiduciary Duty 76The Voluntary Fiduciary Correction Program (VFCP) 76Fidelity Bonds versus Fiduciary Liability Insurance 81Conclusion 84Chapter 7 Establishing and Managing Plan Investments 85The Investment Policy Statement 85The Investment Menu 87Prediversified Portfolios 88Portfolio Construction 90Selection of Investments and Managers 92Monitoring Investments 94Complying with Section 404(c) 97Employer Stock in 401(k) Plans 99Default Investment Option and Mapping 102Advice and Education for Plan Participants 105Brokerage Accounts and Mutual Fund Windows 110Socially Responsible Investing 111Conclusion 112Chapter 8 Managing Your Plan’s Operations 113Monitoring Your Service Provider 113Vendor Services 114Collecting and Using Vendor Metrics 118Service Agreements and Standards 119Operational Compliance 122Regulatory Compliance 130Changing Recordkeepers 138Conclusion 142Chapter 9 Design and Management of Distribution Options 143Vesting Rules 143Distributable Events 147Nondiscrimination Testing Failures and Regulatory Limitations 149Forms of Distributions 151Optional Design Features 152Taxation Considerations 160Miscellaneous 163Conclusion 165Chapter 10 How Business Transactions Affect 401(k) Plans 166Why It Matters 166Business Mergers and Acquisitions 169Plan Terminations 186Divestitures and Downsizing 192Options for Distressed Organizations 194Conclusion 195Chapter 11 Financial Communication and Education for Participants 196Why Do You Offer a 401(k) Plan? 197Communication Strategy 198The Implementation Plan 205Branding your Program 206Managing Vendor Communications 206Three Times Three Ways 207Conclusion 207Chapter 12 Helping Participants Manage Their Retirement Income 208In Plan or Out? 208Risks of Managing Retirement Income 209Retirement Income Product Types 211Additional Product Features 220Conclusion 222Notes 223Index 235