Summary Plan Description (SPD) Part I Vesting

Last week, I touched on different documents that you will want to retain as a plan participant.  A document of particular importance is the Summary Plan Description (SPD).  An SPD is a summary of the plan document written for a layperson to understand.   From my first post about participant statements, you may have noticed an item called vested percentage and/or amount on your statement.  Vested means the portion of your benefit that you have already earned.  Any unvested benefits will not be yours and are considered forfeited or given up when you separate from service.

Any employee contributions you make to your retirement plan are 100% vested.  Based on the type of plan you are in these contributions include:  401(k), 403(b), Roth, Rollover, Voluntary, and Mandatory.  Other names are also used, but the general rule is if you elect your own money to go into the plan, it cannot be forfeited.  Employer contributions can be 100% vested but are typically subject to vesting schedules.  The type of employer contribution is important because different types are subject to different vesting schedules.  This is where your SPD comes in to play.

Are you in a retirement plan that has employer match contributions and employer profit sharing contributions?  You will want to look under vesting in the SPD for the appropriate schedules.  Generally, you will see a table with the number of years of service you need to reach different percentages.  For example, you may be 0% at one and two years of service for profit sharing contributions.  In year three, you become 100% vested.  You will want to check your participant statements to see if they match the service you have earned.  Once you have earned vesting, it cannot be taken away from you.

The SPD should explain how vesting service is calculated.  Some plans are written to only count plan years employed.  More often plan documents are written to calculate based on having worked a certain number of hours.  Most often the requirement is 1000 hours in one year.   However, sometimes a document does not require as high a threshold of 1000 hours and chooses something like 900 hours in one year.  Other provisions to be aware of are restrictions on service you earned prior to establishment of the plan or a certain age.  If those provisions apply, they should be disclosed in the SPD.

Other factors such as amendments to the vesting schedule, lapses in service, grandfathered service, and changes in plan years also affect service.  If you see that your vested percentage is different than what you feel it should be, consult the contact for the plan.  Often times, your participant statement will have a phone number to call.  Some of the other factors mentioned briefly above may explain these differences, and your plan administrator should be happy to provide an explanation.  If there is an error, they should fix the percentage.

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Retirement Plan Paperwork Retention

What paperwork do you need to keep and put together for your retirement plan?   Everyone has different organization requirements, but I will share how I handle my paperwork.  For those of you who prefer digital formats, you can scan all of the documents below onto your computer.  You will also want to retain a back up either electronically or in paper format.  Since we are often updating electronic formats over time, it is very likely that if you store the information as a pdf today, you may not be using pdfs in the future.  Please keep in mind that you may need to update formats as time passes.

As a another caveat, many participants no longer receive paper copies.  You should still be able to save all of this data from the websites you use.  Whether you want to print out a paper copy is entirely up to you.   If you are unable to find the information below, you may just want to set up a filing system going forward.  I would encourage you to go ahead and request a Summary Plan Description (SPD) from your employer.  I will discuss this document in greater detail in future posts.

I create multiple files filed under the specific retirement plan.  As an FYI, I also do a similar file for IRA's.

The first file is for "Elections":

Enrollment/Investment Election Form

Beneficiary Form

Changes to Salary Deferrals

The second file is for the following summaries that participants receive of "Plan Documents":

Summary Plan Description

Summary of Material Modifications

The third file (or files) is for "Participant Statements":

Annual Statements or Statements for the Full Year

Personally, after I confirm the annual statement is correct, I shred trade confirmations and since I receive an annual statement, quarterly statements.   

How long do I keep the data?  Generally, I would keep all of the information above indefinitely for my current employer.  If you are in a situation where you may return to work for the same employer, I would also retain everything until you either do or that seems unlikely to happen.

If you leave your account open after leaving your employer, I would retain the Plan Documents and Annual Statements folders.  Please also note that you will need to confirm that you are updating your statements with your current mailing address.  Often times, statements have an administrator phone number you can call.  Or you can make the changes online.  In other cases, you may make the changes directly with your former employer. With the current economic climate, you will want to update any statements that are out of date as soon as possible.  Many participants become "lost" through employer mergers and acquisitions due to out of date addresses.

If you have already taken a payout from your account and closed it, confirm everything was done properly on your account.  As long as you agree with the payout and believe no additional funds are due you, I would retain no more than the last statement from the plan.  I add it to my rollover documents.   If you did not roll over the data, I would consider adding it to my tax records for the applicable year(s).  

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Reading Participant Statements

For my first post regarding participant issues, I want to let participants know what items I review when I look at my own 401(k) statement.  First, grab your new statement and last statement.  For me, I have the June 2012 and March 2012 quarterly statements.   First, I compare the beginning balance on the new statement to match the ending balance on the prior statement.  Grand totals, per source (for example, 401(k) and match), and per investment fund should all balance.  If they do not and the numbers are substantial, note the differences.

Next, grab your paystubs for the time period associated with your statement.  For me, that was three monthly stubs (April, May and June).  Add up employee contributions withheld. This could be 401(k) and/or Roth contributions depending on what you elected when you enrolled for the plan.  More rarely, different names might be used such as catch-up, pre-tax, after-tax, voluntary.  If you are not sure what should have been withheld, also grab your last enrollment form and confirm that the right dollar amount or percent was being withheld from your paycheck.

Now, I check the employee contributions shown as deposited on the statement against what was withheld from my paychecks during this time frame.  If the dollar amounts do not tie, please note the difference.  In my case, the checks were all deposited before the end of the quarter.  You may have had the last deposited after the end of the statement period.  In that case, deduct your last paystub's employee contributions (for me that would be June 2012) and see if it balances.  You may also need to add in the last amount withheld from the last statement period (for me that would have been March 2012) in the event it was withheld but not deposited before the last statement was cut.  If you still cannot reconcile, note the differences.
Example:
401(k) withheld for March = $10, April = $ 20, May = $20, June = $20
401(k) deposits shown on second quarter statement are $50.
401(k) withheld for second quarter was $60.
$60 does not equal $50.
Difference most likely is due to deposit timing.
Deduct June and add March for new withheld 401(k) total of $50.
Withheld 401(k) now balances to 401(k) deposited.

Finally, I check the employer contribution.  In my case, the employer made a 4% safe harbor match contribution.   I check the calculation to make sure it is correct.
There are numerous match contribution formulas, but in this case, it is 100% of deferrals up to 4% of compensation.
Example:  $20,000 * .04 = $800
Amount of employee contributions was $600 so the match will only be $600.
Amount of employee contributions was $1000 so the match will only be $800.

Any differences you discovered should be reported and discussed with your plan administrator.  There may be adjustments or other reasons for any differences, but if they are not noted on the statement, you will need to ask.  In my case, I have a phone number written on the statement to call if I find discrepancies.  If you do not have that information, you will want to ask who you should follow up with at your employer.

Thanks for reading and have a wonderful day!  Please be sure to subscribe to my blog and follow me on twitter @ChristineGurney.

Hello!

I have designed this blog to address basic issues participants encounter with their retirement plans.  I look forward to feedback, and if you have any questions or issues you would like me to address, please leave a comment!  Unlike other blogs, this website is not affiliated with any companies, and I do not sell products such as annuities.  This blog is created solely to benefit retirement plan participants because I have seen what can go wrong, and I want everybody to be as informed as possible.

I am an enthusiastic pension plan professional with over 15 years of experience.   Currently, I am enrolled to practice before the Internal Revenue Service as an Enrolled Retirement Plan Agent (ERPA).   Additionally, I hold industry certifications of CEBS and ISCEBS Fellow.  I found a love for the retirement plan community while pursuing my BS degree in Actuarial Science.

I am excited to share my views on the pension world, and I hope I can bring additional insight to all interested.  Fresh content is published once a week on Saturday so please be sure to follow me on twitter @ChristineGurney and sign up to follow my blog.   My industry blog is located at www.christinegurneyuspension.com.

Thanks for reading and have a wonderful day!

The Disclaimers
The views expressed on this website/blog are mine alone and do not necessarily reflect the view of my employer.  The views expressed on this website/blog are not intended to substitute for legal advice or any other professional consultation.  The views expressed on this Website/blog are generalized from my life experience and values.  No examples or opinions are directed at any individual, company, government agency or organization.