SURVEY SAYS: Plan Amendments

Last week, I asked NewsDash readers, “When was the last time your firm or retirement plan sponsoring entity executed a plan amendment that was not dictated by new legislation or regulations, and for what reason(s) was the amendment made?”

The majority of responding readers are in a plan sponsor role, while 5.3% each are advisers or consultants and TPAs/recordkeepers/investment managers.

More than half (55.3%) have executed a plan amendment that was not dictated by new legislation or regulations in the past one to two years, while nearly three in ten (29%) are currently doing so. More than 5% reported that it has been three to five years since their last plan amendment, and 7.9% said it has been six to 10 years. Nearly 3% reported they do not know or remember when a plan amendment not dictated by legislation was executed.

The addition of or changes to automatic plan features dominated the reasons for plan amendments. More than 16% reported they adopted automatic enrollment, 13.5% changed their auto-enrollment deferral percentage, 24.3% adopted automatic deferral escalation or changed their auto-escalation rate, and 13.5% adopted or changed their qualified default investment alternative (QDIA).

More than 16% each said their most recent plan amendment made a change to eligibility requirements, added allowed contribution types (i.e., Roth, after-tax, rollover), and added or changed allowed distribution types. More than 13% made a change to the formula for calculating benefits in their defined benefit (DB) plan or for allocating employer contributions to their defined contribution (DC) plan. Eight percent each changed vesting schedule and added or changed loan provisions, while 2.7% each added or changed hardship withdrawal provisions and made a change to the named plan administrator or other fiduciaries.

Nearly one-third (32.4%) of responding readers listed other reasons plan amendments were made. These responses included changing company match contribution formulas or timing, becoming or ceasing to be a safe harbor plan, changing plan years, freezing or terminating a DB plan, and adding small-balance cash-out provisions.

Not many who responded had comments about making plan amendments. Verbatim comments included additional details about plan amendments made, and a warning about making a plan amendment “fail.” Editor’s Choice goes to the reader who said: “So happy that we are doing a clean-up of our very large and complicated pension plan document. Clean-up of the document is daunting, but the person who has my job in 20 years will thank me!”

A big thank you to all who responded to the survey!

Verbatim 

replaced DB Plan with DC Plan for portion of employee population and new hires

We will now allow in-service distributions for participants who are 59 1/2 and working as PRN employees.

We reduced the number of loans available from two down to one, and we made only employee money available.

The timing, wording, and execution of amendments are tricky. Several years back we did a VCP due to an amendment "fail." So we tread carefully when making changes.

We changed our DC plans because of state legislation that penalized us for incentivizing enrollment in our DC plan vs. the state plan (our plan is an Optional Retirement Plan, or ORP).

So happy that we are doing a clean-up of our very large and complicated pension plan document. Clean-up of the document is daunting, but the person who has my job in 20 years will thank me!

We have an excluded category of employee that is very difficult to manage as some employees move in and out of the exclusion category on weekly basis. We have decided to remove the exclusion.

Change just to change? Yep, I was that way once and then I grew up.

Lowered eligibility from 90 days to 60 days, increased company match

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Asset International or its affiliates.