Q: What is needed for an effective employee communication program?
A: An effective 401k employee communication program helps employees understand the plan, including the disclosure and reporting requirements under ERISA, promotes the plan so employees can participate more fully in it and provides investment education and information to participants.
Q: What information must be provided to participants to satisfy the disclosure and reporting requirements under ERISA?
A: Basic information regarding the way the plan works is in the Summary Plan Description, which must be provided to all participants under ERISA. Certain information is provided to the participant through legal forms which the employee must complete. Upon entering the plan the participant must usually complete a Salary Reduction Election form, Directed Investment form and Beneficiary Designation & Pre-Retirement Survivor Annuity forms. When the employee terminates participation in the plan, several forms must be completed to receive the distribution. A participant in the plan should receive, annually, a participant statement showing the development of the vested account balance during the year as well as a copy of the Summary Annual Report of the Plan, which reflects the plan's current financial condition and a summary of the year's income. Information and forms on hardships, loans and Qualified Domestic Relations Orders (QDRO's) must also be provided, where applicable.
Q: How can I better promote the 401k plan to encourage additional participation?
The plan should be first promoted at a mandatory employee meeting, during office others. The following methods for promoting the 401k plan should also be considered: person-to-person contact, using promotional materials, obtaining employee feedback, adding a matching contribution or increasing the match and improving the plan to better meet participants' needs by adding a loan provision, hardship provision, additional investment alternatives or through several other plan enhancements.
Q: What investment education and information should be provided to participants?
A: The basic concepts of saving, compound interest and the way money accumulates in the plan until retirement and a general understanding of investments and investment options should be discussed with employees.
Q: How can I better explain the 401k plan to my employees?
A: The operation of the 401k plan should be explained in simple terms so the participant understands how it works and is not overwhelmed or confused. Employees should know the requirements for plan participation and understand plan contributions. They should also understand how their contributions, investment earnings and investment choices can help the account appreciate. Finally, participants should be aware of the conditions under which they can receive the vested portion of the account upon termination and the tax consequences involved. Conveying the way funds can be received in the form of loans or hardship distributions while the employee is a participant is also important.
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