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Do you know what
your 401k summary plan description says? Do you even know where
it is?
If you're like most
401k-plan participants, you received this copy of your plan
rules when you enrolled. And, like most participants, you skimmed
it and tossed it out, or stuck it in a pile of papers never to be
found again.
"For most employees, the summary plan description looks
pretty unappetizing. The employers say 'look at this' and the
employees throw it away," said David Wray, president of the
Profit/Sharing 401k Council of America, a trade group
representing 401k plan sponsors.
Yet, this is one of the most
critical pieces of paperwork that you have about your 401k plan.
Here's why you shouldn't casually toss it aside.
What It Is
As the name says, a summary plan
description (SPD) is a summary of the key features of your 401k
plan. The plan's full rules are laid out in a longer report called
the plan document, but that is too unwieldy for companies to
automatically distribute to all employees.
All SPDs lay out plan rules such
as:
- when you are eligible to
participate,
- the vesting schedule for
employer-matching contributions (if applicable),
- the size and timing of employer
matching contributions (if applicable),
- how to qualify for, apply for
and receive hardship withdrawals (if applicable),
- how to apply for a loan, and
interest rate calculations for loans (if applicable),
- withdrawal procedures (at
retirement and for rollovers),
- employee contribution rates,
- your rights under the Employee
Retirement Income Security Act (ERISA),
- contact information of the plan
sponsor and trustee, and the plan identification number
(necessary if you want to review filings with the IRS or
Department of Labor),
- the appeals process if plan
rules aren't followed, including the person or firm to be
contacted if you file suit against the plan.
The document typically runs
anywhere from 12 to 20 pages long.
Say you want to take a loan or make
a hardship withdrawal. The SPD will tell you what documentation
you will need, and might also give you an idea how long it may
take to receive your check.
This is the document to refer to
when you are about to retire or leave your job. It spells out the
rules for getting your money. Another reason to keep this document
handy: if you die, your beneficiary or relatives will need it to
make a claim on your benefits.
Legalese, but
Readable
The prose contained in the average
SPD is not likely to win a Pulitzer Prize, because it's often
pretty legalistic. The intent, though, is for the document to be
understandable by the average employee.
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"Should
you read it cover-to-cover? Nah! Look at it when
you have things that are relevant."
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—
Ted Benna, creator of the first 401k plan and
president of the 401k Association.
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Most employers use common SPD
"templates" provided by their 401k providers. This
saves costs and typically ensures that all the legal fine points
are covered.
Your SPD isn't likely to be to be
scintillating reading, but it's an important reference document,
observed Ted Benna, the creator of the first 401k plan and
president of the 401k Association. "Should you read it
cover-to-cover? Nah! Look at it when you have things that are
relevant," he suggested.
Some employers have taken the time
to make their SPDs more readable by having staff writers turn them
into glossy, attractive documents with charts, photos and more
interesting text.
Required by Law
Federal law requires employers to give
you a copy of the SPD when you enroll in the plan. Your employer
is also required to hand out new copies after five years if there
are changes to the plan or after 10 years if there is no change.
But, changes to the federal laws
are made frequently enough that many employers hand out updated
copies more often than every five years, said Cindy McCabe, owner
of CGM Communications, an employee communications consulting firm
in Corte Madera, Calif.
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Handing out a
"SPD is a legal requirement of the plan
sponsor, because the government believes that
someone has to tell you your benefits and your
rights and the employer's obligations."
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—
Ann Plank, manager of retirement plan product
services with Franklin Templeton, in San Mateo,
Calif.
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Your employer is also required to
let you see a copy of your SPD any time you ask. Some companies
post it on their corporate intranet so it's always available for
employees to read. According to anecdotal evidence collected by
the American Benefits Council, about one-third of large employers
currently offer their SPDs via a corporate intranet or Internet
site, about one-third are thinking of doing so, and the last third
don't plan to offer the SPD electronically at all.
Still, just posting it on an
intranet may not be enough. The Department of Labor is still
deciding whether this is an acceptable substitute for delivering a
paper copy, said John Scott, director of retirement policy with
the American Benefits Council. "It is a bit of a gray
area," he said.
Handing out an "SPD is a legal
requirement of the plan sponsor, because the government believes
that someone has to tell you your benefits and your rights and the
employer's obligations," said Ann Plank, manager of
retirement plan product services with Franklin Templeton, in San
Mateo, Calif.
The SPD outlines the terms of your
participation in your 401k plan, so in a sense it is a part of a
legally binding contract. "The employer is required to follow
the terms laid out in the SPD," Benna said.
The only exception is if the plan
document, the longer, official set of rules for your plan,
says something different from the SPD. This can occasionally
happen when plan documents are amended, even though employers and
benefits providers try to avoid such conflicts. The plan document
is considered the definitive word on your plan, Plank said.
If your employer fails to operate
the 401k plan according to the rules laid out in the plan
document, the plan could be disqualified, she said.
Your employer is also required to
make the plan document available for you to see at any time.
Only
Communication
If your company has only a
bare-bones 401k plan, the SPD may be one of the few pieces of
information you get about your plan.
So, it's a good idea to hang on to
this document. 
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