401(k) New Hire Administration

Deferral Election Form

The deferral election form may also include other authorizations or acknowledgments. Employees should complete, sign and return the form to human resources, the benefits department, or the third-party administrator, as applicable.

Please note there may be one form for new participants to make their initial elections, and another form for existing participants to change their existing deferral elections.
It is critical to develop internal control procedures to ensure that the amount deducted from a participant’s wages is consistent with the participant’s deferral election. Inconsistencies in this regard are the source of many operational defects – which are potential plan qualification issues — and can also violate state law (for example, if the amount withheld is greater than the amount authorized by the employee).

Beneficiary Designation Form

Employees are typically permitted to designate both primary and contingent beneficiaries on a beneficiary designation form that has been designed to reflect the plan’s particular provisions. Some plans allow participants to designate entities such as estates, trusts or charities as primary or contingent beneficiaries, subject to ERISA’s spousal consent rules.

It is recommended that participants review their beneficiary designation forms periodically and keep them up-to-date. Under ERISA, if a participant is married, the participant’s spouse must be the primary beneficiary, unless the spouse has consented in writing to the designation of another beneficiary. It is important to note that due to recent U.S. Supreme Court decisions, as well as additional guidance issued by the Internal Revenue Service and the Department of Labor, a same-sex spouse must be considered the participant’s primary beneficiary, unless the same-sex spouse has consented in writing to the designation of another beneficiary. This new guidance does not apply to individuals in other formal relationships, such as registered domestic partnerships or civil unions.

By maintaining detailed records of beneficiary designations and spousal consents, and keeping track of the current marital status of participants, plan administrators may be able to avoid costly disputes stemming from circumstances such as contradictory beneficiary designation forms and claims by ex-spouses. Plan sponsors may want to periodically solicit up-to-date beneficiary designations from all participants, to remind participants to consider any life changes (marriage, divorce, birth, or death) which may have occurred that might impact whether they should update their beneficiary designations.

Rollovers

When an individual becomes employed by a new employer, it is very common for the individual to want to move his or her retirement plan balance from the prior employer’s plan to the new employer’s plan. To allow for this, most 401(k) plans permit participants to make rollover contributions to the plan.

A rollover contribution may be in the form of a direct rollover from the prior employer’s plan, from an interim “rollover” IRA, or in the form of an indirect rollover from the prior employer’s plan directly to the participant, and then from the participant to the new employer’s plan. In this case, the participant generally has 60 days to decide to contribute the distribution to the new employer’s plan in a rollover contribution.

The new employer’s plan provisions will determine whether an employee must meet the plan’s regular participation requirements before making a rollover contribution, and other conditions, such as how rollover amounts will be accounted for and invested under the plan.