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Take an active role: Monitor your 401(k)

Sarah Menge

An employer sponsored 401(k) plan constitutes a great tool to help employees save for the future. But it’s important to understand your plan and play an active role in monitoring your benefits to make sure you achieve your retirement goals.

The first step in using a 401(k) is understanding the key provisions of the plan and how the plan is managed. Once you’ve enrolled, your employer must provide what’s called a Summary Plan Description (SPD) within 90 days. Read through the SPD to gain an understanding of the main provisions of the plan. If you’re unsure about any of the features, talk with your plan manager right away.

In addition to understanding the plan provisions, review your personal information, contribution elections and investment elections regularly to make sure everything is correctly entered by your plan administrator.

All personal information — including Social Security number, hire date, years of service with the employer, address, marital status and beneficiary — should be reviewed annually for accuracy, even if no changes are expected. The hire date and years of service are especially important because they’re used to determine vesting in plans with employer contributions.

Contributions to a 401(k) plan may come from employees, employers or both. When enrolling in a plan, you’ll select a percentage of your salary or a set dollar amount to contribute. If the plan has an employer matching contribution, the employer portion might be tied to the employee’s contribution or it could be a flat amount or percentage of an employee’s salary. Knowing and understanding the type of matching provision will allow you to maximize the employer contribution.

Participants should double check each paycheck stub to make sure the percentage or amount withheld agrees with the amount that was elected. Any deviations should be reported to the plan administrator and human resources department as soon as possible so any necessary corrections can be made.

An individual benefit statement that shows your beginning account balance, contributions to and distributions from the plan, earnings and ending balance should be received quarterly or annually depending on the plan type. Check this statement to make sure employee and employer match contributions were properly allocated to your account.

Most 401(k) plans are “participant directed” plans in which the employee selects from investment options provided by plan management. Participants should consider their own risk tolerance and also might want to meet with a financial advisor before making investment allocation decisions. Participants also should review investment performance in determining allocations for existing balances or new contributions. In addition, participants should review their individual benefit statements to ensure the allocation of contributions matches their election.

The written plan document must name at least one fiduciary in control of plan assets. It could be an administrative committee or board of directors depending on the structure of your plan. The plan administrator is the person responsible for running the plan and providing information to participants. Most plans also use a third party administrator, such as a bank, to manage investments and typically also have an investment advisor available to counsel participants and help plan management determine what funds to offer.

Some key fiduciary responsibilities of plan management include:

  • Following plan documents.
  • Diversifying plan investments.
  • Paying only reasonable expenses of administering the plan and investing the assets.
  • Remitting employee contributions to the plan on a timely basis.
  • Avoiding conflicts of interest.
  • Providing required reports to plan participants.
  • Acting solely in the interest of plan participants and their beneficiaries.

Employee benefit plans are highly regulated by the Department of Labor and subject to various reporting requirements through annual tax returns filed with the Internal Revenue Service. Oversight from both of these federal agencies is driven to protect participants and make sure funds aren’t misused.

Still, this oversight doesn’t provide absolute protection for participants. You must take an active role in understanding your plan and reviewing your account balance to make sure your elections have been properly made. 

Monitoring your 401(k) plan and playing an active role in planning for retirement constitute key steps to achieving your financial goals.

Website:
Sarah Menge is a certified public accountant and manager at Dalby, Wendland & Co., a full-service accounting firm based in Grand Junction. Menge specializes in audit and accounting services for clients in several industries, including benefit plans, construction, insurance and non-profits. She’s a member of the Colorado Society of Certified Public Accountants. For more information about Dalby, Wendland & Co., call 243-1921 or log on to the website located at www.DalbyCPA.com.
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Posted by on May 8 2013. Filed under Contributors. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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