Requirements for new deferral or insurance elections?

[AlbanyConsultant]

A question we're debating in the office here: is there any requirement to have the participants update their elections annually (or some other frequency, I suppose)? We're considering things like an election to not purchase life insurance, 401(k) deferral percentage, investment election, beneficiary designation, etc. Most of us believe that such things are in force until changed by the participant. I can't find anything on it for or against, so I'm willing to take the silence as a "no"...

[WDIK]

Most of us believe that such things are in force until changed by the participant.

I fall into the "most" category.

An exception may exist if plan language is atypical.

[QDROphile]

Only idiots will allow plans to fail to have terms that resolve the question or SPDs that fail to cover the point. With respect to elections to receive the benefits, the plan terms or related cafeteria plan terms should determine how to deal with a change to the employee's cost of the benefit, and the terms should be prominently disclosed. Except for an election not to receive benefits, elections that carry forward to a new year are not a good idea, and may be impermissible, for spending accounts.

[AlbanyConsultant]

QDROphile, while I agree with you that in cafeteria plans and the like this needs to be specified, I've never seen a 401(k) plan document that covers it. I've just today checked 3 different protoypes and 2 volume submitters and nothing is ever mentioned. If you're working with a document that spells it out, I'd love to see it so I can send it to our document providers. Let's edjumacate the idiots!

WDIK, sure, the document language prevails, if it is mentioned. It's just that it's not.

[R. Butler]

QDROphile, while I agree with you that in cafeteria plans and the like this needs to be specified, I've never seen a 401(k) plan document that covers it.  I've just today checked 3 different protoypes and 2 volume submitters and nothing is ever mentioned.  If you're working with a document that spells it out, I'd love to see it so I can send it to our document providers.  Let's edjumacate the idiots! 

WDIK, sure, the document language prevails, if it is mentioned.  It's just that it's not.

I'll join in you in the class of "idiots". Every plan we handle (prototype, volume submitter, and individually designed) are silent as whether 401(k) election percentages must be renewed annually. Actually, like you, I have NEVER seen a document that addressed that specific issue.

I also fall into the "most" category. The enrollment forms we prepare do specifically address the issue & state that deferral elections are in effect until otherwise changed. Enrollment kits prepared by directly by the recordkeeper/investment co. do not always specifically address the issue, but we take the same position. In a written policy statement might not hurt, but I don't see that it has to specifically put into the document.

In regards to investment changes, most documents I have a broad provisions that the Adminstrator will adopt procedures in regards to Participant Investment Direction. If your document is silent or if it contains just broad language I recommend that the Administrator does have some sort of written policy statement. Most of the enrolloment forms I have seen are fairly clear about investment elections & when they can be changed, but the written policy statement doesn't hurt.

[QDROphile]

Don't be so hard on yourselves. Appropriate plan terms depend on the circumstances. 401(k) plans are nowhere near welfare and cafeteria plans with respect to annual periods. For example, there is almost never something akin to annual enrollment, so there is no need for express provisions dealing with the annual elections and what happens if an election is not received. As long as the procedures for elections and changes of elections are covered in the plan document and related formal administrative procedures, nothing requires special attention to the turn of the plan year. I still think the SPD should say that the deferrral election and the invesment instruction will stay in effect until changed. However, the plan, together with formal procedures, does have to deal with periodic and extraordinary events, such as bonuses. For example, are bonuses subject to a separate election or will the latest election simply be applied to the bonus? What if no separate bonus election is submitted? Does the last separate bonus election carry forward (dangerous)? Also, note the current interest in ideas such as automatic enrollment and automatic periodic escalation for elective contributions. Implementation of those ideas needs specific plan terms.

Welfare plans are much more sensitive to the turn of the plan year. Benefits and costs can change dramatically from year to year, with related enrollment ceremony. The plan terms should be geared to the plan needs and enrollment and elections are much more of a big deal, requiring much more attention.

While many persons other than idiots use prototypes, the quality of ..., oh, never mind.

[WDIK]

QDROphile:

Your point is well-taken with regard to cafeteria plan and other welfare plan election periods. However, since this was posted in the 401(k) forum, my answer was geared specifically toward that type of plan. The fact that I have never seen a 401(k) plan document require annual deferral elections prompted my use of the word "atypical".

(The preceding paragraph should in no way be interpreted to infer that I am not an idiot, which fact I must concede.)