RPF M6 U3 Complicating Factors

Question 1

What complicating factors does Sally encounter while implementing a new plan?

Answer 1

Sally encounters surprises, frustrations, and learns new pitfalls to avoid, questions to ask, and ways to improve communication.

Question 2

What inconsistency does Sally find in the vesting schedule?

Answer 2

The vesting recorded for several participants is not consistent with the plan document’s vesting schedule.

Question 3

What did Sally discover about the vesting schedule after obtaining amendments?

Answer 3

Participants hired before the amendment retained the previous vesting schedule, while newly hired participants were on the amended vesting schedule.

Question 4

What are illiquid investments?

Answer 4

Assets that cannot be immediately valued and liquidated to cash.

Question 5

What is an investment platform?

Answer 5

A finite selection of investments provided to a plan from which the trustee and/or participants can choose to invest their accounts.

Question 6

What is the primary importance in managing relationships during a conversion?

Answer 6

Managing relationships with the plan sponsor, staff, co-workers, advisors, attorneys, and the staff of the prior service provider.

Question 7

What role does a payroll provider play in the conversion process?

Answer 7

They prepare paychecks, calculate tax withholding, and may provide services for the employer’s 401(k) plan.

Question 8

What is the main function of a third-party administrator (TPA)?

Answer 8

To provide administration and compliance services for the plan.

Question 9

What does a recordkeeper do?

Answer 9

Tracks investment accounts for each participant and invests participant deferrals and company contributions.

Question 10

What is the role of a consultant in the conversion process?

Answer 10

To ensure the best fit in plan investments and services for the qualified plan.

Question 11

How do advisors differ from consultants?

Answer 11

Advisors are employed by investment companies and advise on investments, while consultants may be independent professionals providing broader services.

Question 12

What is the responsibility of the board of directors in the conversion process?

Answer 12

To approve major deals and plans, including the new contract with the successor provider.

Question 13

What considerations are involved in changing investment platforms?

Answer 13

Whether investments will be mapped or re-enrolled, if there are illiquid assets, and if investments involve self-directed brokerage accounts.

Question 14

What is mapping in the context of investment conversion?

Answer 14

Reinvesting participants’ accounts in similar investments based on their current elections.

Question 15

What is re-enrollment?

Answer 15

Allowing participants to choose new investments from the new platform.

Question 16

What challenges arise when converting from trustee-directed to participant-directed plans?

Answer 16

Liquidation of assets and the need for participant education.

Question 17

What are illiquid assets?

Answer 17

Investments that cannot be easily valued or liquidated, such as jewelry, art, or limited real estate partnerships.

Question 18

What is required for employee education when transitioning to participant-directed plans?

Answer 18

Participants need thorough instruction on how to direct their investments.

Question 19

What is account allocation in the context of a conversion?

Answer 19

Correctly allocating pooled assets into individual participant accounts.

Question 20

What is required for participants to direct their own investments?

Answer 20

Participants need a speed course in how to direct their investments. Quick instruction on completing required forms is insufficient.

Question 21

How are assets allocated in a trustee-directed plan?

Answer 21

Assets are pooled together in one account and must be correctly allocated into individual participant accounts during conversion.

Question 22

What checks must a new service provider perform during asset allocation?

Answer 22

The new service provider must perform checks on allocation reports and conduct ‘spot’ calculations for various participant categories.

Question 23

What is the total account balance for the High-Yield Stock Fund?

Answer 23

$250,000

Question 24

What is the total account balance for the Mid-Cap Fund?

Answer 24

$185,000

Question 25

What is the total account balance for the Short-Term Fund?

Answer 25

$10,000

Question 26

What happens during conversions from participant-directed plans?

Answer 26

Investments must be reinvested according to participants' new investment elections after education on investment strategy.

Question 27

What is a self-directed brokerage account?

Answer 27

It is an account held with a brokerage firm allowing participants to invest in any traded investment.

Question 28

What must be obtained for a conversion involving individual brokerage accounts?

Answer 28

Complete information for all accounts must be gathered, especially for highly compensated participants.

Question 29

Why is obtaining data vital for administering a qualified plan?

Answer 29

It ensures continued qualification of the plan and avoids future issues.

Question 30

What must be tracked if a plan has an age eligibility requirement?

Answer 30

The Date of Birth (DOB) must be tracked to determine participant age.

Question 31

What must be tracked if a plan has a service requirement?

Answer 31

The Date of Hire (DOH) must be tracked to determine length of service.

Question 32

How is service measured if a plan counts actual hours?

Answer 32

Each hour worked must be tracked, and it must be determined who is responsible for tracking.

Question 33

What must be reported if a plan has different eligibility requirements by employee class?

Answer 33

Each employee’s class must be reported.

Question 34

What is required if vesting schedules apply?

Answer 34

Service history must be tracked, including hours of vesting service for each participant.

Question 35

What is the significance of tracking designated Roth deferrals?

Answer 35

Earnings on Roth distributions are only qualified if the Roth account has been held for at least five years.

Question 36

What must be tracked if the plan allows hardship withdrawals?

Answer 36

The basis and earnings must be tracked separately, especially prior to the 2019 plan year.

Question 37

What is required for in-service distributions?

Answer 37

Only the vested portion of the account is available for withdrawal.

Question 38

What must be tracked for participants who have passed away?

Answer 38

The Date of Death (DOD) and beneficiary information must be recorded.

Question 39

What is required for participants subject to required minimum distributions (RMDs)?

Answer 39

Date of birth and ownership status must be tracked to determine RMD eligibility.

Question 40

What was the required minimum distribution (RMD) age prior to 2020?

Answer 40

The age for RMDs was 70.5.

Question 41

What did the SECURE Act change regarding RMD age?

Answer 41

The SECURE Act moved the RMD age to 72 for years prior to 2024.

Question 42

Was an RMD required for 2020?

Answer 42

No RMD was required for 2020 due to the CARES Act.

Question 43

Do non-5% owners need to take RMDs if still employed?

Answer 43

Non-5% owners do not need to take RMDs if still employed, if the plan allows postponement.

Question 44

What must non-5% owners who have attained age 73 do if required distributions cannot be delayed?

Answer 44

They must receive their required minimum distribution.

Question 45

Why is beneficiary information important for RMDs?

Answer 45

It is used for accurate calculation of the RMD amount.

Question 46

What must be ensured if a plan is converted in the last quarter of the year?

Answer 46

The prior provider must complete the RMDs, or the implementation team must ensure timely completion.

Question 47

What is the penalty for not completing RMDs on time?

Answer 47

Participants face penalties if RMDs are not completed on time.

Question 48

When must first-time RMD recipients receive their distributions?

Answer 48

By April 1 following the year in which they attained age 73.

Question 49

What is one of the greatest challenges of a conversion?

Answer 49

Obtaining all of the data required.

Question 50

Who is often delegated to provide information during a conversion?

Answer 50

Individuals with direct access to the information requested by the implementation specialist.

Question 51

What role does the Head of Human Resources (HR) play in data gathering?

Answer 51

HR oversees payroll and designates a payroll clerk to provide employee data.

Question 52

What information might the CFO/CEO provide during a conversion?

Answer 52

Prior year Form 5500s and valuation reports from the prior provider.

Question 53

What documents might an attorney provide during a conversion?

Answer 53

Plan documents, amendments, and contracts with the prior provider.

Question 54

What happens if the prior provider refuses to provide information?

Answer 54

The plan sponsor must obtain any records the successor provider may need.

Question 55

What is the first step in the conversion process?

Answer 55

Signing the Notice of Intent by the plan sponsor.

Question 56

What is the last step in the conversion process?

Answer 56

The successor provider has received all assets and information.

Question 57

What must occur before the restatement of the plan document can begin?

Answer 57

The existing plan document must be received.

Question 58

What is the purpose of the Blackout Notice?

Answer 58

To inform participants and beneficiaries about the blackout period.

Question 59

What must be created before any assets are transferred to the successor provider?

Answer 59

Participant and beneficiary accounts.

Question 60

What must participants receive regarding new investments?

Answer 60

A fee disclosure of the fees that will be charged under the new investments.

Question 61

What is essential for a smooth conversion process?

Answer 61

Establishing good relationships, clear communication, and asking the right questions.

Question 62

What factors can complicate the implementation of a new plan?

Answer 62

The types of services being changed, communication with service providers, and data acquisition.

Question 63

What determines the types of data that must be obtained for a plan?

Answer 63

The types of plan features dictate the data required and the level of detail.