Special Guest Author Victor Hicks: A checklist for plan sponsors to ensure 401(k) plan compliance and optimization

Victor HicksBy: Victor H. Hicks II, CFP®, AIF®
Owner, Managing Principal, Lumin Financial, LLC
An Independent Registered Investment Adviser
[email protected]

Once a retirement savings plan has been approved and is in place, it’s tempting to sit back and adopt an “I’m done, hands off” attitude. However, to ensure that a plan will continue to operate effectively, employers should periodically review plan provisions and features. Here are some points we remind our clients to check:

How the Plan Is Presented. The more convinced employees are of the wisdom of saving for retirement, the greater the level of employee participation. The greater the participation, the more the plan can benefit all employees — including highly compensated employees. Regular meetings, newsletters, and handouts are effective means of communicating plan advantages. Check to make sure printed materials are up to date and easy to understand, and distribute them frequently.

Plan Investments. Employers that sponsor participant-directed plans can limit potential legal liability for losses caused by employees’ investment decisions if plan investment choices meet certain requirements under Section 404(c). Very generally, where 404(c) protection is sought, a plan should offer at least three “core” investment choices, allow employees to switch investments at least once each quarter, and provide participants with adequate disclosure of specified investment information.

Administration. Participants and beneficiaries must be given a copy of the Summary Plan Description (SPD) within 120 days after a plan is adopted or within 90 days after becoming eligible to participate in the plan or receive benefits. Review the SPD to make sure it accurately describes the provisions of your plan. If changes have been made to the plan document — which is likely, given the recent tax law changes — then all participants must receive a notification of these changes within 210 days after the end of the plan year in which the changes were adopted. Generally, all participants must receive a copy of the SPD every five years.

Summary annual reports must be distributed to participants within nine months after the close of the plan year. If a plan receives an extension to file its annual report (Form 5500) with the IRS, then the summary annual report must be distributed within two months after the end of the extension.

Plan Rollovers. Qualified plans must allow a participant to elect direct rollover of any eligible distribution to an IRA or another employer-sponsored retirement plan. Your plan should have procedures in place to handle direct rollovers.

Bonding. Generally, plan fiduciaries and others who handle the assets of a plan must be bonded. The bond must be equal to at least 10% of the funds handled by the bonded individual, but cannot be for less than $1,000 and need not be for more than $500,000.

Loans to Participants. Loans that are not properly administered may be treated as constructive distributions resulting in taxable income to the recipients. Review loans to make sure that loan balances do not exceed the maximum limitations. Unless used to finance the purchase of a principal residence, all loans must be repaid within five years. A plan may impose more stringent conditions on loans than the law requires.

Plan Forms. All forms should meet current requirements. Forms that may need updating include beneficiary designation forms, benefit election forms, and the notice of distribution options.

If you are unsure whether your plan currently meets all the requirements of our checklist, or if you would like assistance reviewing your plan, please call a Lumin Financial adviser.


Lumin Financial is a fee-only independent Registered Investment Adviser, specializing in 401(k) plans for small- to mid-sized employers. Lumin Financial advisors serve plan sponsors throughout the Midwest with a disciplined approach to managing plan investments, counseling on fiduciary risk matters, and reducing excessive plan fees. In addition to managing investments and risk, Lumin delivers personalized financial education to plan participants. Let them help you plan a clear direction for a bright future.


Lumin Financial, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.  Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters.  You should discuss any tax or legal matters with the appropriate professional.