HTLF Retirement Plan Services
Plan Sponsors Q&A

Detailed answers are provided for questions asked by Plan Sponsors.

Questions and Answers

  • We always meant to automate our plan audit files, but somehow we didn’t get around to it. When the pandemic hit, we had to send the information via email. What do we need to know to protect the information we send?

    First, you are not alone. Before COVID-19, lots of companies were maintaining all of their plan audit records on paper, and thus faced a challenge when they had to send them off for review. And you’re right, data security is threatened when that transmission is not done properly. It’s a serious matter since one of the duties of an ERISA fiduciary is managing the plan appropriately and that includes keeping security in mind. As you make prepare to send any plan records to a third party, there are two primary things to keep in mind: which information, and how to send it. Understand that “personal protected information” may consist of more data than you think, so do your best to learn exactly what’s included. In general, email is not a secure means of sending sensitive information, even if your company has strict controls. So, the first thing to do is set and communicate guidance about what can and cannot be emailed. Then, contact anyone who may need sensitive information and find out if they have a secure portal you can use to transmit it. That way, the recipient will need to log in to view the information, reducing opportunities for bad guys to access it. If your provider does not have a secure portal for this purpose, you may want to find one that does. Read more about protecting your plan audit (and other) data in this article.

  • One item that has moved to the top of our wish list is providing some kind of emergency savings program for our employees. Is there a way to add one into our 401(k) plan, or will it have to be a separate program?

    The pandemic certainly pointed out a need for people to accumulate emergency savings, and many employers and service providers are asking the same question. In fact, in a recent report on the subject of emergency savings, it was found that 37% of Americans can’t come up with $400 from savings in an emergency. Among those whose household incomes are less than $60,000, the figure was 58%, and it’s even higher for women and Black households making less than $60,000. The report is based on interviews with nine of the largest US recordkeepers and seven employers, inquiring about ways to facilitate emergency savings products. Eight of the recordkeepers said they either offer or plan to offer such a program, either in-plan or out. There was no clear preference by plan sponsors for either in-plan or out-of-plan solutions, and recordkeepers said they would base their offerings on participant and plan sponsor demand. Plan sponsors may not wait around for the complexities to be worked out; four of the seven interviewed for this report said they plan to offer emergency savings soon, either through a recordkeeper or through a credit union. There are, of course, pros and cons to consider when comparing in-plan and out-of-plan emergency savings, and the report discusses some of them. Read more here.

  • Last fall we heard that we should consider only financial factors in selecting investments for the 401(k) plan’s investment menu, which could make it difficult to include environmental, social and governance (ESG) choices. Has anything changed?

    It has. On November 13, 2020, the Department of Labor (DOL) released its final regulations (following the June 30, 2020 proposed regulations) that many felt discouraged ESG investments in qualified plans because such investments consider non-financial factors. Soon after taking office, the Biden administration directed federal agencies to pump the brakes on regulations adopted during the Trump administration, including that new DOL guidance. So, on March 10, 2021, the DOL announced that they will not pursue enforcement action against any plan based on failure to comply with the November 2020 final regulations’ impact on ESG selections. Of course, this is not a general policy of non-enforcement; all other applicable rules for selecting and monitoring investments that are based on ERISA and subsequent regulations continue to apply. But it may mean that choosing ESG options for the investment menu of a qualified plan could get easier.

  • Q: Our business was hanging on in spite of COVID-19, but then our area was hit by wildfires. Can employees who participate in our 401(k) plan take money out of their accounts under the COVID relief provisions?

    A: No, but there may be another solution for them. Recognizing that many businesses and employees are suffering the financial effects of fires and other natural disasters, Congress changed the rules about plan loans and distributions for them. Similar to 2020’s COVID relief rules, the Consolidated Appropriations Act, 2021 (the Act), provides for qualified disaster distributions. Those who are eligible for these types of distributions may withdraw up to $100,000 from their eligible retirement account without penalty or withholding. Like a COVID relief withdrawal, the withdrawals may be recontributed over a three-year period. Also allowed under the Act are plan loans up to $100,000 or 100% of the present value of the participant’s vested account balance for qualified individuals. The Act makes an additional provision for participants who took a hardship distribution for the purchase or construction of a principal residence in a qualified disaster area. Such distributions, taken between 180 days before and 30 days after the qualified disaster incident, may be recharacterized if the money was ultimately used for a different purpose because of the disaster. With so many complexities involved in these new rules, we recommend speaking to the plan’s legal counsel for guidance.

  • Q: We recently had a participant ask if they can repay their 401(k) loan early. What should we consider in making a decision? Because of the way loan repayments are applied in our system, we expect there would be difficulties?

    A: This is a question in which you will need a legal opinion. However, there are a few key considerations to consider — and systems difficulties aren’t really at the top of the list. Similar to other questions about qualified plans, meeting the prudent person test should come first. Maybe the participant realizes the interest he or she is paying back to his or her account is less than the account could earn if invested. Failing to allow the loan to be repaid could give that participant a reason to look to the courts for redress. Another potential problem could arise if the participant is not allowed to repay the loan in its entirety and later defaults. That, too, could create a fiduciary breach. Remember, mere functional procedures (as opposed to those that are specified in the Plan Document, the Summary Plan Description, or other governing documents) are just not as important as is prudence in operating the plan. So if the prudent thing is to allow prepayment, then that’s what should happen in spite of any technology challenges. Here’s an interesting discussion on the topic, which appeared on BenefitsLink:

  • Q: Unfortunately, we don’t expect to be in a position to rehire everyone for some time. Some of our employees are telling us that they are less confident now that they will be able to retire on time. Is that what you’re hearing from other companies?

    A: Yes, retirement confidence has taken a hit for many because of repercussions of the pandemic. A January 7, 2021, article on Kiplinger’s summarized a poll they conducted with Personal Capital, a wealth management firm. In that poll, 43% reported less confidence in their ability to retire comfortably as a result of COVID-19. Forty percent said their confidence level has not changed, though. What are people planning to do about it? About one-third of them (34%) said their plans have not changed. Thirty-five percent said they expect to work longer, 34% plan to save more, and 20% said they will revise their activities and/or travel in retirement so it will be less costly. The poll shows that just over 34% said they took a distribution from a retirement account and 27.4% took a loan. Nearly one-third (32%) said their withdrawal was between $75,000 and $100,000, and 31% borrowed in that same range.

  • Q: The ups and downs in the stock market have made some of our 401(k) plan participants very nervous, to the point that some have moved their entire accounts into money market funds. Is that a good strategy for retirement savings?

    A: First, be aware that you cannot offer investment advice to participants; doing so could violate your fiduciary duties. You can, however, offer general investment education. Your nervous participants are correct that 2020 has stimulated a lot of market volatility, and it may continue. But over the years, dollars that stay invested in the stock market have historically done better than dollars that come and go based upon the emotional response of the investor. One recent blog post commented on research from DALBAR, showing that investors’ desire to “do something” in turbulent times may have resulted in underperforming the S&P 500 by 4% per year between 2009 and 2019. Similar results came in the bond market, in which the average non-index investor lagged behind the Bloomberg-Barclays Aggregate Bond Index by 3% during the same time period. Sadly, those investors did not manage to beat the inflation rate during that decade. Learn more at

    1Past performance is no guarantee of future results. Individual results may vary; investors may not invest directly in an index.

  • Q: We’d like to make some changes in our plan investment menu. There are participants with money invested in the funds we have identified to eliminate. Is it a good idea to grandfather these participants?

    A: This should be a discussion with your plan’s investment professional. In fact, you may want to cover the topic with the plan’s attorney, just as a housekeeping matter. But as you make the decision, consider that even when the decision is made with the best of intentions, grandfathering may not achieve the desired outcome. When you make a change to plan provisions, investment options or even your other benefits, non-grandfathered employees will likely find out about it. Whether new employees or those who are established come out “better off,” you can be sure the word will spread, and that could be disruptive. And don’t forget the compliance aspect of making changes for one group over another, says Cammack Retirement. They cite the potential for failing future nondiscrimination tests that may result from grandfathering employees in certain situations. While that may not be the case when changing a plan investment, it underscores the need to think through potential outcomes when considering grandfathering in the plan. Read here for more information:

  • Q: With two options for paying 401(k) plan expenses — either from company assets or plan assets — we wonder if there is a fiduciary argument for one over the other.

    A: One fiduciary argument springs immediately to mind: there is no risk of excessive fees being charged to participant accounts if the company is footing the bill. Still, it’s a good question to ask when structuring a new plan, or re-examining an existing one. Besides the fiduciary liability benefit, there are several other reasons paying plan fees with company assets could benefit both the company and plan participants, according to Capital Group. First, because plan fees are tax-deductible, paying from company assets may result in tax savings. Second, it can improve transparency to participants, which may contribute to employee relations efforts. Paying from company assets may also mean more investable assets. Not only could that result in better pricing, it may lead to higher account balances for participants down the road. Take a look at the article here:

  • Q: Early in the pandemic, we were very concerned that employees would take as much money as they could out of our 401(k) plan. That didn’t happen. How have other companies (and their plans) fared?

    A: Your experience seems similar to what others have experienced. A survey conducted jointly by Commonwealth and the Defined Contribution Institutional Investment Association’s Retirement Research Center found that participants with low-to-moderate incomes did not withdraw significant amounts from their retirement plan accounts. Their research showed that just 5% had taken a withdrawal as of June, with 7% saying they planned to do so later. Instead of plan withdrawals, respondents said they had paused or stopped contributing to the plan (10%), stopped paying bills (8%), borrowed money from friends or family (7%), or sold possessions (7%). The survey’s published results ( make suggestions about ways employers and providers can help low-to-moderate income employees. For example, they suggest reminding employees about financial wellness resources,  and offering highly liquid emergency savings accounts that can help with expenses during a crisis.

  • Q: We plan to add socially conscious investments to our 401(k) plan menu, and we’re wondering if there is anything special we should know about how to choose the right ones.

    A: In selecting any investment, socially conscious or otherwise, the key phrase is the same one you should apply to any decision for your plan: process documentation. Whether you’re selecting an investment, a provider, or anything else, it’s always smart  to document how you arrive at your decisions, because it can Be used as evidence that your process is sound — even if the results aren’t what you hoped they would be. Interestingly, there is some discussion recently about the DOL requesting lots of documentation from plan sponsors to justify their socially conscious investment choices (see Plan sponsors have been asked for as many as 13 types of support documents in the process, according to the cited article. We suggest that you talk to your plan’s investment professional about documenting your selection process. By carefully crafting an Investment Policy Statement, for example, you should be able to handle any inquiries that come about as you add socially conscious funds to your lineup.

  • Q: One of our workers wants to designate his children, rather than his wife, as beneficiaries of his 401(k) plan accounts. He is required to sign the documents in front of a live witness, but because of COVID-19, he is concerned about doing so.

    A: The Internal Revenue Service recently issued a Notice, #2020-42, addressing this concern. The Notice provides temporary relief from the “in-person” requirement for witnessing a participant signature on this kind of document. It applies to participant elections made between January 1 and December 31, 2020. Under normal circumstances, the signature of the employee must be witnessed in person by a plan representative or a notary public.  But temporarily, the requirement can be met, in the case of a notary, by using live audio-video technology. If the signature is to be witnessed by a plan representative, there are additional requirements, such as requiring that the participant present a valid photo ID during the live video conference. More conditions apply, so it is important to understand the temporary rules. The Notice  can be found at  You may wish to discuss it with the plan’s attorney, too, because  if the signing does not meet the requirements, it could be invalid. That could cause trouble for the plan and its fiduciaries, not to mention significant complications of the payout upon the participant’s death. 

  • Q: A few employees who had to take pay cuts are considering applying early for their Social Security benefits, rather than continuing to work at reduced pay. Where can we point them for information about this decision?

    A: has the most up-to-date, accurate and complete information available on the subject of Social Security. There, people can obtain a statement of how much to expect when they begin receiving payments. Whether or not to begin payments is an important decision with lifetime implications, and it is important for those employees to understand that. Taking benefits early will mean a lifelong reduction in monthly payments. Yet, when the economy takes a downturn, the first inclination of people who are eligible may be to start their benefits early; according to the Center for Retirement Research, about 42% of people who were 62 in 2009 — 1 year after the stock market drop in 2008 — signed up for their benefits. That was a nearly 5% increase over the prior year. An April 9, 2020, post on the Squared Away Blog from the Center for Retirement Research at Boston College ( reminds readers of the considerable financial cost of starting Social Security benefits early.

  • Q: Participants seem to need help figuring out the best approach to take with their 401(k) plan investments. How can we help them?

    A: Many employers share your concerns, because financial decisions today will undoubtedly have considerable impact on future retirements. Your desire to help is commendable. But it’s important that you know the difference between providing financial education and financial advice, and that your service provider does, too. Generally speaking, you or your service providers can provide investment education without fear of triggering a prohibited transaction — an event with serious plan qualification implications. Such education is general in nature. For example, you can explain asset allocation, diversification, and dollar-cost averaging. Investment advice is more specific to an individual. Avoid telling a participant what they “should” invest in, even if it’s something you personally do. For more information about this important topic, read the article, “The Difference Between Investment Education and Advice,” from Financial Finesse and published on

  • Q: We were considering doing a re-enrollment in our 401(k) plan before the pandemic hit. Should we go ahead this fall as planned, or wait until next year?

    A: Sadly, our crystal ball isn’t working so we don’t know for sure what challenges may lie ahead. But the fundamental reason to do an investment re-enrollment has not really changed: some participants may be keeping their account balance in a fund that is ultraconservative or even in cash or an equivalent fund. They are therefore not able to benefit from a target date fund or your other carefully-selected qualified default investment account (QDIA). Re-enrollment may actually provide some fiduciary protection, because these cash or ultraconservative fund investors may suffer in the long run from low returns. By re-enrolling, you can move them into the QDIA, giving them the opportunity to affirmatively opt out if they so choose. Most probably won’t. When you do decide to go forward with the re-enrollment, be sure to communicate with participants to let them know why you are re-enrolling, and that they do have the opportunity to choose not to change investments.

    Diversification may not protect against market risk. Dollar cost averaging does not guarantee a profit or protect against market loss. This approach relies on an investor’s willingness and financial ability to continue making regular investments in both up and down markets.

  • Q: We’ve been reviewing our plan investment results, and they look pretty good in recent years. We are wondering how they compare to the results in other plans. Can you provide information about that?

    A: We can give you information gathered by the Employee Benefit Research Institute (EBRI). Since 2016, EBRI has tracked balances of participants in participant-directed plans and delivers the data monthly. (In fact, they tracked data before 2016, but changed some methodology in that year making direct comparison difficult). For participants with account balances at December 31, 2016, figures show a dramatic increase of 172% for the period January 1, 2017, through January 1, 2020, for participants aged 25–34 and 1–4 years of tenure with the current employer. The account balances reflect investment returns as well as contributions. Account balances for employees aged 35–44 with 5–9 years of tenure during the same period increased 88%, and those 45–54 years old with 10–19 years of tenure increased 60%. You can see the data for yourself at

  • Q: We are revamping our communications for the new year. Retirement plans and investing are complex. What’s the latest thinking on how to communicate these concepts to our varied employees in a way they will understand?

    A: Two principles come to mind: keep it simple, and keep it positive. Invesco studied the topic of clear participant communication recently and found that the language we use to communicate with employees about their plans really does make a difference. For example, participants respond much more favorably to “free money” than “matching contribution.” While “free money” certainly clarifies the definition of matching contribution, it also resonates as a positive. Overall, 39% of employees responded favorably to the term; in contrast, 23% responded favorably when the concept was expressed as the more negative aspect of “leaving money on the table.” Understanding and proper use of target date funds also improves when clear language is used to describe them. Participants of all ages understand target date funds best when the term “managed for you” is used. The frequently used term “glide path” seems distasteful to them, with just 4% preferring it when the topic is discussed. Compare that to the phrase “risk-reduction path,” which was preferred by 40%. For more on this topic, visit Invesco at

  • Q: We will be adding auto features to our 401(k) plan, and wonder where to set the auto-enrollment deferral rate. Is it best to start on the low end, such as 3% of pay? We don’t want to encourage people to opt out by setting the deferral rate too high.

    A: While it may seem counterintuitive, setting a low rate may actually work against employees’ ability to save enough. In part, that’s because inertia can set in. T. Rowe Price says that, among employers utilizing auto-enrollment, participants are saving at a rate of 6.5% of pay. Contrast that to plans where employees opt-in, where participants are saving 9.3% of pay. The lower savings rates for auto-enrollment plan suggests that employees view the auto rate as an endorsement from the employer; they feel safe contributing that — and only that — percentage of pay. Recently, the Wharton Pension Research Council at University of Pennsylvania studied OregonSaves, a state-sponsored auto-enrollment retirement plan. Their findings suggest that the optimal default deferral rate is 8%. You can access the paper in which they present their findings at

    Read more on the impact of auto-enrollment on employee retirement savings at

Pension Plan Limitations for 2021
401(k) Maximum Elective Deferral
(*$26,000 for those age 50 or older, if plan permits)
Defined Contribution Maximum Annual Addition   $58,000
Highly Compensated Employee Threshold   $130,000
Annual Compensation Limit   $290,000


  • Send payroll and employee census data to the plan’s recordkeeper for plan-year-end compliance testing (calendar- year plans).
  • Audit fourth quarter payroll and plan deposit dates to ensure compliance with the DOL’s rules regarding timely deposit of participant contributions and loan repayments.
  • Verify that employees who became eligible for the plan between October 1 and December 31 received and returned an enrollment form. Follow up for forms that were not returned.
  • Update the plan’s ERISA fidelity bond coverage to reflect the plan’s assets as of December 31 (calendar-year plans). Remember that if the plan holds employer stock, bond coverage is higher than for nonstock plans.
  • Issue a reminder memo or email to all employees to encourage them to review and update, if necessary, their beneficiary designations for all benefit plans by which they are covered.
  • Review and revise the roster of all plan fiduciaries and confirm each individual’s responsibilities and duties to the plan in writing. Ensure that each fiduciary understands his or her obligations to the plan.
  • Provide quarterly benefit/disclosure statement and statement of plan fees and expenses actually charged to individual plan accounts during prior quarter, within 45 days of end of last quarter.
  • Begin planning for the timely completion and submission of the plan’s Form 5500 and, if required, a plan audit (calendar-year plans). Consider, if appropriate, the DOL’s small plan audit waiver requirements.
  • Review all outstanding participant plan loans to determine if there are any delinquent payments. Also, confirm that each loan’s repayment period and the amount borrowed comply with legal limits.
  • Check bulletin boards and display racks to make sure that posters and other plan materials are conspicuously posted and readily available to employees, and that information is complete and current.
  • If a plan audit is required in connection with the Form 5500, make arrangements with an independent accountant/auditor for the audit to be completed before the Form 5500 due date (calendar-year plans).
  • Audit first quarter payroll and plan deposit dates to ensure compliance with the United States Department of Labor’s rules regarding timely deposit of participant contributions and loan repayments.
  • Verify that employees who became eligible for the plan between January 1 and March 31 received and returned an enrollment form. Follow up for forms that were not returned.
  • Monitor the status of the completion of Form 5500, and, if required, a plan audit (calendar-year plans).
  • Issue a reminder memo or email to all employees to encourage them to review and update, if necessary, their beneficiary designations for all benefit plans by which they are covered.
  • Perform a thorough annual review of the Plan’s Summary Plan Description and other enrollment and plan materials to verify that all information is accurate and current, and identify cases in which revisions are necessary.
  • Provide quarterly benefit/disclosure statement and statement of plan fees and expenses actually charged to individual plan accounts during the prior quarter, within 45 days of the end of last quarter.
  • By May 15 (or 45 days after the end of the quarter) participant-directed defined contribution plans must supply participants with a quarterly benefit/disclosure statement and a statement of plan fees and expenses actually charged to individual plan accounts during the first quarter.
  • Begin planning an internal audit of participant loans granted during the first six months of the year. Check for delinquent payments and verify that repayment terms and amounts borrowed do not violate legal limits.
  • Confirm that Form 5500, and plan audit if required, will be completed prior to the filing deadline or that an extension of time to file will be necessary (calendar-year plans).
  • Review plan operations to determine if any qualification failures or operational violations occurred during the first half of the calendar year. If a failure or violation is found, consider using an IRS or Department of Labor elf-correction program to resolve it.
  • Check for any ADP/ACP refunds due to highly compensated employees for EACA plans, in order to avoid an employer excise tax.
  • Conduct a review of second quarter payroll and plan deposit dates to ensure compliance with the U.S. Department of Labor’s rules regarding timely deposit of participant contributions and loan repayments.
  • Verify that employees who became eligible for the plan between April 1 and June 30 received and returned an enrollment form. Follow up for forms that were not returned.
  • Ensure that the plan’s Form 5500 is submitted by July 31, unless an extension of time to file applies (calendar-year plans).
  • Begin preparing for the distribution of the plan’s Summary Annual Report to participants and beneficiaries by September 30, unless a Form 5500 extension of time to file applies (calendar-year plans).
  • Provide quarterly benefit/disclosure statement and statement of fees and expenses that were charged to individual accounts to participants (due 45 days after end of quarter).
  • Submit employee census and payroll data to the plan’s recordkeeper for midyear compliance testing (calendar- year plans).
  • Confirm that participants who terminated employment between January 1 and June 30 elected a distribution option for their plan account balance and returned their election form. Contact those whose forms were not received.
  • Begin preparing the applicable safe harbor notices to employees, and plan for distribution of the notices between October 2 and December 2 (calendar-year plans).
  • Distribute the plan’s Summary Annual Report by September 30 to participants and beneficiaries, unless an extension of time to file Form 5500 applies (calendar-year plans).
  • Send a reminder memo or e-mail to all employees to encourage them to review and update, if necessary, their beneficiary designations for all benefit plans.
  • Audit third quarter payroll and plan deposit dates to ensure compliance with the Department of Labor’s rules regarding timely deposit of participant contributions and loan repayments.
  • Verify that employees who became eligible for the plan between July 1 and September 30 received and returned an enrollment form. Follow up for forms that were not returned.
  • For calendar year safe harbor plans, issue the required notice to employees during October or November (within 30-90 days of the beginning of the plan year to which the safe harbor is to apply). Also, within the same period, distribute the appropriate notice if the plan features an EACA (Eligible Automatic Contribution Arrangement), QACA (Qualified Automatic Contribution Arrangement) and/or QDIA (Qualified Default Investment Alternative).
  • Prepare to issue a payroll stuffer or other announcement to employees to publicize the plan’s advantages and benefits, and any plan changes becoming effective in January.
  • Conduct a campaign to encourage participants to review and, if necessary, update their mailing addresses to ensure their receipt of Form 1099-R to be mailed in January for reportable plan transactions in the current year.
  • Check current editions of enrollment materials, fund prospectuses and other plan information that is available to employees to ensure that they are up-to-date.
  • Provide quarterly benefit/disclosure statement and statement of plan fees and expenses actually charged to individual plan accounts during the prior quarter, within 45 days of the end of last quarter.
  • Prepare and distribute annual plan notices, such as 401(k) safe harbor for safe harbor plans with a match, QDIA annual notice, automatic enrollment and default investment notices, at least 30 days before plan year end.
  • Prepare to send year-end payroll and updated census data to the plan’s recordkeeper in January for year-end compliance testing. (Calendar year plans)
  • Verify that participants who terminated during the second half of the year selected a distribution option for their account balance and returned the necessary form.
  • Review plan operations to determine if any ERISA or tax-qualification violations occurred during the year and if using an IRS or DOL self-correction program would be appropriate.

Consult your plan’s financial, legal, or tax advisor regarding these and other items that may apply to your plan.


Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it. Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; 877-306-5055;

© 2020 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should always consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.