Alerus Retirement Solutions Plan Administration Guide

Transcription

1 Alerus Retirement Solutions Plan Administration Guide

2 Introduction This guide provides a summary of procedures, documents, compliance testing, and government reporting related to qualified plans that will aid in answering your questions as well as those from your employees. Legal documents govern the administration of your Plan, if you have Plan related questions, you should refer to these documents or call your Account Manager or Account Administrator. Teamwork is key to the successful operation of your Plan. By working together, we can deliver timely and accurate service for the benefit of your employees. Thank you for selecting Alerus as your service provider. We look forward to serving you for years to come. This Administration Manual is intended to be a guide to administration of your plan. This Administration Manual is not intended to be legal advice. This manual does not alter the Plan s legal documents. The actual text of the Plan s legal documents shall govern plan administration in all instances. v

3 i Fiduciary Best Practices You have established an employer sponsored retirement plan to provide benefits for your employees and your company. Offering a retirement plan can be one of the most challenging, yet rewarding, decisions you can make as an employer. Administering a plan and managing its assets, however, require certain actions and specific responsibilities. Among other requirements, you have an obligation to communicate information about the finances and operation of the Plan, disclose certain information to employees, and file reports with the government. Alerus Retirement Solutions and Alerus Financial, N.A. (collectively Alerus ) work with you to address these obligations. To meet your responsibilities as, you need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage employee benefit plans and assets. Who is a Fiduciary? Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. Having discretion over plan assets or administration can make you a fiduciary to the extent of that discretion, thus, fiduciary status is based on the functions performed for a plan, not just a title. It is important to understand who is and is not a fiduciary of your Plan. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over a plan. Remember that you can share your fiduciary responsibility with service providers and employees, but you cannot completely eliminate it. A plan must have at least one fiduciary (person or entity) named in the plan documents, or through a process described in the plan, as having control over the plan s operation. The fiduciary can be named by office or name. In general, the Trustee and Plan Administrator are fiduciaries, while attorneys, accountants, and actuaries are not fiduciaries when acting solely in their professional capacities. Depending on the relationship between the plan and a vendor, a service provider such as an investment advisor may also be a fiduciary. Fiduciaries act on behalf of participants in a retirement plan and, as a result, are subject to high standards of conduct. Fiduciaries must: 1. Act solely in the interest of participants and their beneficiaries and with the exclusive purpose of providing benefits; 2. Carry out their duties prudently; 3. Follow the plan documents; 4. Diversify plan investments; and 5. Pay only reasonable plan expenses.

4 ii How do you meet your responsibilities? The most important step is to identify the fiduciary needs of your Plan and assign or delegate each responsibility. You should also determine the fiduciary roles and responsibilities of: Trustee Plan Administrator Investment Advisor Look to the Plan Document or written policies to clarify areas of responsibility and oversight. Review these materials and ensure you are operating in accordance with them. You should have several policies such as a funding policy, investment policy, loan policy, QDRO policy, etc. Make sure you know and understand what is expected of you and follow through on your obligations. Setting up Policy Committees to handle the different aspects of your responsibilities can help. Policy Committee Tips Meet Regularly (at least annually) Follow By-laws on Committee Appointment and Acceptance Document the Experience of Members Provide Education and Training Bring in Outside Professionals as Needed Hiring experts to provide fiduciary functions is permissible, but is not a simple solution. You must still review and select your experts well, ensure that they are receiving only reasonable compensation, and monitor their performance. This is not a case of set it and forget it. Policy Committee Meetings Take and retain notes of meetings, even if no changes occur. Make a record of: Attendees Items Discussed Other Considerations Decisions Reached Review Fiduciary Liability Coverage Ensure that it is included in commercial package Determine if it is a claims made policy Must report claim while policy is in force Determine if coverage is sufficient in light of: Plan Assets; Participant Count; and Type of Assets Held. Manage your personal and corporate liability by ensuring that you are taking steps to protect yourself and your company.

5 iii Plan Design Plan fiduciaries should make sure to review plan design and administration at least annually. Have a discussion with your Account Manager to ensure the best design for your situation. In general, avoid changing the design to please a small percentage of participants and designs that you cannot support operationally. Also, make sure to review your annual reports and notices, including Form 5500, Plan Audit, and Summary Annual Report. You are responsible for reporting these to the government agencies and participants, and you should ensure they accurately represent your Plan, and that you understand what is being reported or disclosed. Some additional issues to be aware of: Employee Deferrals/Loan Deposits Review deposit arrangements with payroll and Plan Administrator. Confirm timeliness of deposits. Confirm performance standards for investment of deposits. Compliance Testing Confirm that Plan Administrator has completed tests. Review and understand test results. Check Fidelity Bond Generally it is at least 10% of plan assets, not to exceed $500,000. Confirm with carrier that it is a bond, not just liability insurance. Confirm Timely Filing Form Rs Legal Documents Confirm that Plan Document has been updated for any required restatements and interim amendments. Confirm that SPD is up to date (including SMMs). Review delivery procedure to ensure participants are receiving. Review with Plan Administrator Definition of Eligibility Excluded Employees Allocation Criteria Compensation Definition Confirm that payroll department or provider understands as well. Loan Process vs. Loan Policy

6 iv Confirm Timely Delivery of Required Notices SPD/SMM SAR Participant Statements Fee/Investment Disclosures (404a-5) If Applicable: QDIA Notice Mapping Notice Blackout Notice Auto Enrollment Notice Auto Acceleration Notice Safe Harbor Notice ESOP Diversification Notice Participant Education As a fiduciary, you must also look to the education of participants. Alerus offers a variety of educational opportunities and your Account Manager can help you establish an education plan that will best enhance the knowledge and participation of your participants. General Education Topics Participation in the Plan Saving for Retirement Diversification/Asset Allocation Dollar Cost Averaging Tax Advantages Risk/Return Concepts Inflation Compounding Market Behaviors (recession, etc.) It s also a good idea to require HR communications and participant education is reviewed prior to delivery: Determine appropriate party to conduct review. Retain samples of all items provided to employees. Plan Investments Here are some areas that a plan fiduciary must address with regard to plan investments. Make sure you understand what is involved in each issue, along with your own responsibilities. Creation and Maintenance of Investment Policy Statement Review of Investment Options using Objective Standards Use of Company Stock or Alternative Investments Use of a QDIA

7 v Company Stock or Alternative Investments Confirm proper valuation. Review information available to participants. Consider percentage limitations on amount of account which may be invested in alternative investments. QDIA Confirm that investment meets QDIA criteria. Target Funds (age appropriate; review/understand glide path) Balanced Fund (appropriate for demographics) Confirm that participants are provided initial and annual notice of QDIA. Plan Investments are a source of considerable consternation, stress, and fiduciary liability. You can reduce your exposure by following best practices and by partnering with a qualified investment advisor. Plan Fees As a fiduciary, you have a responsibility to ensure that all fees charged to the Plan or paid by the company are reasonable. Fiduciary responsibilities also include ensuring fees paid out of the Plan meet the appropriate requirements. While many fees can be paid out of the Plan, in addition to ensuring the requirements to do so have been met, they also must be disclosed by the service provider to the participants and the Plan Administrator. Alerus provides a Service Provider Disclosure that meets the requirements of what we as a service provider must disclose to you as a Plan Administrator. Alerus also provides a Participant Fee Disclosure Notice to distribute to participants annually. This disclosure meets the requirements of what a Plan Administrator must disclose to participants for the fees covered in the Alerus relationship. Are your other service providers doing the same? For example, if legal fees or accounting fees are being paid out of the Plan, are they being disclosed to participants? Tips for Reviewing Fee Structure Look at both Direct and Indirect fees. Understand total cost vs. services rendered. Determine if inherent conflicts exist that affect the objectivity of the service provider. Reviewing Participant Fee Disclosure (404a-5) Assure that it covers all vendors and fees. Confirm delivery arrangements. Remember: Follow your Plan Document and policies operationally and most importantly, keep the lines of communication open with your Account Manager to ensure you are meeting all of your fiduciary responsibilities, and that Alerus is partnering with you in every way possible.

8 vi The following resources are also available to you to help understand your responsibilities: DOL Fiduciary Guide Meeting Your Fiduciary DOL Guide Understanding Retirement Plan Fees and Expenses DOL 401(k) Plan Fee Disclosure Tool DOL Guide Selecting and Monitoring Pension Consultants Tips for Plan Fiduciaries

9 Table of Contents A. Legal Documents Plan Document Summary Plan Description Retirement Plan Services Agreement B. Enrolling New Participants How to Enroll Participants Forms/Documents/Brochures C. Participant Account Changes Salary Deferral Changes Investment Election Changes and Transfer Account Balances Beneficiary Designation Changes Name and Employment Status Changes Forms/Documents/Brochures D. Plan Contributions Regular Employee Salary Deferral Contributions Employee Catch-up Contributions Contributions Remitting Plan Contributions and Loan Payments Forms/Documents/Brochures E. Distributions and Withdrawals Timing of Benefit Payments Method of Benefit Payments Special Tax Notice Regarding Plan Payments Income Tax Reporting Forms/Documents/Brochures F. Hardship Withdrawals General Hardship Reasons Hardship Conditions Forms/Documents/Brochures G. Loans General Loan Rules Terminated Participants with Loans Forms/Documents/Brochures H. Rollovers Into the Plan Rollover Acceptance Conditions Rollover for Ineligible Participant Forms/Documents/Brochures v

10 I. Qualified Domestic Relations Order Determining Whether a Domestic Relations Order is Qualified Forms/Documents/Brochures J. Highly Compensated and Key Employees Identifying HCEs Identifying Key Employees K. Plan Testing IRC 402(g) Calendar Year Deferral Limit IRC 415 Maximum Annual Addition IRC 416 Top Heavy Test IRC 401(k) Actual Deferral Percentage Test IRC 401(m) Actual Contribution Percentage Test IRC 410(b) Minimum Coverage Test IRC 404 Contribution Deduction Limit L. Investing Plan Assets Investment Resources Investment Updates Forms/Documents/Brochures M. Employee Census Data File and Annual Compliance Questionnaire Forms/Documents/Brochures N. Annual Return IRS Form 5500 and Related Returns Audit Requirements Summary Annual Report Form 8955-SSA O. Bonding Bond Amount Bond Requirements P. Notices and Disclosures Participant Plan and Investment Fee Disclosure Safe Harbor Notice Qualified Default Investment Alternative Notice Automatic Enrollment and Automatic Escalation Notices Summary Annual Report Summary Plan Description/Summary of Material Modifications v

11 1 A. Legal Documents Plan Document The Plan Document is the governing document for your Plan. If you utilize the Alerus pre-approved document, this consists of the Adoption Agreement, Basic Plan Document, and Internal Revenue Service (IRS) Advisory Letter. These documents establish the rules regarding your Plan s operation and qualification. Any changes to the document must be done by formal amendment. These documents are not required to be distributed to participants. However, participants and their beneficiaries are entitled to review the documents upon request. Summary Plan Description The Summary Plan Description (SPD) is intended to give participants an easily understood explanation of the Plan. The content of the SPD is mainly determined by Department of Labor (DOL) regulations. Each newly eligible participant or beneficiary must be provided with an SPD no later than 90 days after becoming eligible for the Plan or eligible for benefits, as in the case of a beneficiary. An SPD must also be provided to any participant or beneficiary upon request. If any change is made to the Plan that affects the SPD, a Summary of Material Modifications (SMM) may be prepared and distributed to participants and beneficiaries rather than rewriting the entire SPD. Retirement Plan Services Agreement The Retirement Plan Services Agreement between the and Alerus outlines plan administration services to be provided by Alerus and the responsibilities of the.

12 2 Review and execute the legal documents and any amendments. Return copies of executed legal documents to Alerus. Instruct Alerus, in writing, of desired changes in Plan provisions or design. Distribute the SPD and/or SMM to newly eligible participants and beneficiaries within 90 days after the participant or beneficiary becomes eligible. Distribute updated SPD upon any Plan restatement. Alerus Prepare legal documents as required or requested by the Plan Sponsor and send to for review and signature. Amend and/or restate Alerus prototype document as requested or required. Produce an SPD and any applicable SMM for the Alerus document as requested or required. Provide user ID and password for each online service selected to the Primary Security Contact(s) named on the Online Services Authorization Form.

13 3 B. Enrolling New Participants The Plan specifies entry dates indicating when an employee can enter the Plan after meeting eligibility requirements. An employee who has satisfied the Plan s eligibility requirements should receive enrollment materials. How to Enroll Participants A new participant can enroll in the Plan by completing the Enrollment Form and returning it to the prior to the participant s entry date. A copy of the Enrollment Form should be forwarded to Alerus for our recordkeeping system, and the original kept in your files. Alerus also offers an online enrollment option. If you utilize this option for your Plan, Alerus will send log-in information to eligible participants as provided by the Plan. If an employee chooses not to make salary deferrals into the Plan, the Enrollment Form should still be completed. If the Plan is audited, the IRS will ask the for this documentation. Such election will also avoid any conflict with an employee who mistakenly thinks they elected to contribute. All eligible employees should make an investment election on the Enrollment Form. If an investment election is not made, any contributions will be invested in the Plan s default fund. These elections govern not only participant deferrals, but also any contributions or forfeitures allocated to the Plan. If your Plan utilizes an Auto Enrollment feature, you should work with your Account Administrator to ensure that all eligible employees are properly enrolled whether they complete an Enrollment Form or not. All participants must also complete a Beneficiary Form. The is responsible for retaining Beneficiary Forms.

14 4 Determine which employees are eligible to participate in the Plan and provide them with an Enrollment Kit containing the Enrollment Form, Beneficiary Form, required notices, and investment materials prior to their entry date. Review each Enrollment Form. Update payroll records for any salary deferral election changes. Verify that investment elections total 100%. Forward a copy of the form to Alerus and retain the original for your files. Review each Beneficiary Form, verifying that beneficiary and social security numbers have been provided and that participants (and spouses, if applicable) have signed the forms. Sign and retain the form for your files. Alerus Provide and update enrollment materials as requested by the. Enter new participant data in accordance with the Plan. Forms/Documents/Brochures Enrollment Form Beneficiary Form Investment Materials Participant Notices

15 5 C. Participant Account Changes Alerus will process participant account changes as received and in accordance with the legal documents for the Plan. All participant account changes must have the appropriate authorization ( and/or Participant). Salary Deferral Changes Participants wanting to increase, decrease, or discontinue their deferral percentage should use the Salary Reduction Agreement (or Online Deferral Change). The updates payroll records for salary deferral election changes. Investment Election Changes and Transfer Account Balances Participants who want to change investment elections for future deposits or transfer their existing account balance must do so by internet or telephone. Beneficiary Designation Changes Participants must use the Beneficiary Form to name their primary and/or secondary beneficiary. Participants should periodically review their beneficiary designation, especially when a major life event occurs, such as a marriage or divorce, and make changes as appropriate. Name and Employment Status Changes If a participant has a name or employment status change (such as termination, retirement, etc.), update that information with Alerus via your regular contribution upload file.

16 6 Provide participants with the appropriate forms or instructions to initiate changes. Authorize the use of web site and voice response unit by signing the Retirement Plan Services Agreement and Online Authorization Form. Review, sign, and retain the original forms for your files. Update payroll records for salary deferral election changes, name changes, or employment status changes. If utilizing Online Deferral Changes, pull payroll report each Monday and update payroll records for salary deferral changes. Alerus Provide forms applicable to the Plan. Process changes in accordance with proper authorization from the and/or participant. Forms/Documents/Brochures Salary Reduction Agreement or Online Salary Deferral Change Access Beneficiary Form Retirement Plan Services Agreement Online Authorization Form

17 7 D. Plan Contributions Regular Employee Salary Deferral Contributions Participants in 401(k) plans may be permitted to make pre-tax or Roth salary deferral contributions to the Plan, as allowed by the Plan and elected on their Salary Deferral Agreement. There is a statutory limit on the amount a participant can defer, identified in Internal Revenue Code Section 402(g), which limit is adjusted by the IRS annually. Alerus provides you with this limit on the Administrative Reminders annual update. You may set additional limitations in your Plan design. Regular deferral contributions are also limited for Highly Compensated Employees by the ADP testing. Employee Catch-up Contributions A participant who will be at least age 50 by the end of the calendar year is also eligible to make catchup contributions, if provided for in your Plan document. The amount of catch-up contributions made in addition to regular salary deferrals is also set forth by the IRS on an annual basis. Refer to Administrative Reminders for this limit. The Plan will not consider a participant to have made a catch-up contribution until they have exceeded an applicable limit. Contributions A Plan may also provide for contributions. contributions can be discretionary, determined on an annual basis or a specific formula set in the document. contributions can be in the form of a matching contribution and will match a certain percentage or amount of the participant deferrals into the Plan, or in the form of a profit sharing contribution that will allocate a certain amount or percentage to each participant. The allocation formula and timing of contributions will be identified in the Plan document. Most contributions can be subject to a vesting schedule, requiring participants to work a certain number of years before the Contributions become fully owned. Remitting Plan Contributions and Loan Payments Your Plan requires contributions (and loan payments, if applicable) be deposited into the Plan account timely. Employee salary deferral contributions and loan payments must be sent directly to Alerus each payroll. contributions may be made periodically during the year or annually, depending on your Plan. Please refer to the Contribution Submission Guide for more details on remitting contributions and payroll detail.

18 8 The should provide a Salary Reduction Agreement. The must coordinate the catch-up contributions with the payroll provider. Remit Plan contributions and loan payments within the required DOL time frame. For salary deferrals this is the earliest date on which the contributions can be reasonably segregated from the s general assets following each payroll. Remit Plan contributions and loan payments to Alerus via Automatic Clearing House (ACH), wire transfer, or check. Provide Plan contribution and loan detail to Alerus in an electronic format, along with control totals. Alerus Provide Salary Reduction Agreement forms applicable to the Plan document. Amend Plan, as requested by the, to allow for catch-up contributions. Apply and invest Plan contributions and loan payments, as directed by participants and/or, upon receipt of all required documentation. Notify of any outstanding item that may delay investment of a Plan contribution. Forms/Documents/Brochures Salary Reduction Agreement Contribution Submission Guide

19 9 E. Distributions and Withdrawals Timing of Benefit Payments a. Distribution Upon Termination of Employment Participants may receive a benefit from the Plan in the event of one of the following: Termination of Employment Normal or Early Retirement as Defined in the Plan Document Death Disability as Defined in the Plan Document Prior to receiving a payment, a participant or beneficiary must complete a Distribution Form or Death Benefit Form (as appropriate), and read the Special Tax Notice Regarding Plan Payments. b. In-service Withdrawal While Still Employed The Plan may allow a participant to request and receive a benefit from the Plan while still employed. Benefit options for your Plan are outlined in the Plan Document and may include: Hardship Withdrawal (see Section F) Withdrawal upon Reaching Age 59½ (or other age as defined in the Adoption Agreement) Withdrawal of Voluntary After-tax Contributions Withdrawal of Rollover Account Prior to receiving a payment, a participant must complete the appropriate form and read the Special Tax Notice Regarding Plan Payments. c. Required Minimum Distribution (RMD) Beginning at Age 70½ Participants may be required to receive a minimum distribution from the plan upon attaining age 70½ and annually thereafter. A 5% owner or terminated employee must receive an RMD. Employees who continue to work after age 70½ and are not 5% owners may generally defer distributions until retirement. Annually, Alerus will notify s of participants who have reached age 70½ according to census data provided by the. Prior to receiving an RMD, a participant must complete a Minimum Distribution Election Form and if desired, IRS Form W-4P. These forms will be mailed to the on an annual basis. Method of Benefit Payments Upon termination of employment, if a participant s vested account balance is less than $5,000, the benefit will be paid in a lump sum unless the participant has requested a direct rollover (age 59½ withdrawals, after-tax withdrawals, and rollover account withdrawals will be treated in the same manner). We also offer Online Distributions as an option for certain plans. Plans with Joint and Survivor benefits are not be able to use this service. Once a plan is approved, the receives Online Distribution Instructions.

20 10 If the value of the participant s vested account balance exceeds $5,000, distributions will be made via one of the following benefit payment options, as allowed by the Plan Document: a. Direct Rollover payment of benefits to an Individual Retirement Arrangement (IRA) or to another qualified retirement plan. A participant (and beneficiary, if applicable) may elect this option by completing and signing the Distribution Form. b. Lump Sum payment of benefits to the participant. A participant (and beneficiary, if applicable) may elect this option by completing and signing the Distribution Form. c. Installments (if allowed) periodic payments made on a monthly, quarterly, or annual basis. A participant (and beneficiary, if applicable) may elect this option by completing and signing the Distribution Form and the Installment Payment Election Form. d. Joint and Survivor Annuity, Married Participants (if allowed) monthly payment to the participant for life and a 50% payment to the spouse after the participant dies. If the Plan includes annuity distribution requirements, payment will be made as a qualified Joint and Survivor Annuity for married participants unless another method of payment is elected. If the participant requests a different method of payment, the spouse must approve the method by providing a signature, which must be witnessed by a Notary Public. e. Life Annuity, Unmarried Participants (if allowed) monthly payment to the participant for life. If the Plan includes annuity distribution requirements and the participant is not married, payment will be made as a Life Annuity, unless another method of payment is elected. If the participant requests a different method of payment, the participant must elect the method in writing. Special Tax Notice Regarding Plan Payments The is required to provide the Special Tax Notice Regarding Plan Payments to a participant or beneficiary who applies for benefit payments. The notice contains important information they need to know before deciding how to receive Plan benefits and explains how a participant can continue to defer federal income tax on their retirement savings. Income Tax Reporting Upon a withdrawal, distribution, or the default of a loan, IRS Form 1099-R is generated and mailed to the participant or beneficiary by Alerus. This form is mailed by January 31 of the year following the payment and the information is reported to the IRS.

21 11 Provide participant or beneficiary with the appropriate form and Special Tax Notice Regarding Plan Payments at termination of employment or upon request. Authorize any distribution (in accordance with the Plan Document) by reviewing and signing the original form. Upload a copy of the form to Alerus via Gateway and retain the original for your files. Alerus Provide forms applicable to the Plan as requested by the Plan Sponsor. Pay benefits according to participant, beneficiary, and/or Plan Sponsor direction. Benefits will be paid after receipt of proper authorization. Mail lump sum or rollover distributions directly to the participant or beneficiary. Mail IRS Form 1099-R directly to the participant or beneficiary in January of the year following the distribution, and report data to the IRS. Forms/Documents/Brochures Distribution Form Death Benefit Form Employee After-Tax Withdrawal Form Hardship Withdrawal Form Minimum Distribution Election Form Installment Payment Election Form Installment Payment Change Request Form Special Tax Notice Regarding Plan Payments Form 1099-R

22 12 F. Hardship Withdrawals The Plan may allow a participant to receive a hardship distribution as elected in the Plan Document. If the Plan permits hardship withdrawals, a participant may request a distribution from salary deferral contributions for limited purposes. Plans may also allow hardship distributions from accounts. Refer to the Plan Document for specific information. General Hardship Reasons a. To pay medical expenses incurred by the participant or the spouse or dependents of the participant. These include expenses not covered by insurance and may be deductible under Internal Revenue Code 213; b. To pay costs directly related to the purchase of the participant s principal residence. This does not include mortgage payments; c. To pay tuition and related educational fees for the next 12 months of post-secondary education for the participant, or the spouse, children, or dependents of the participant; d. To pay amounts necessary to prevent the eviction of the participant from their principal residence or to prevent foreclosure on the mortgage of the participant s principal residence; e. To pay burial or funeral expenses for a deceased parent, spouse, child, or dependent of the participant; or f. To pay expenses for the repair of damage to the participant s principal residence that would qualify for the casualty deduction under Code 16. Hardship Conditions a. The requested hardship amount cannot exceed the financial need. The total may be increased to pay taxes resulting from the distribution; b. The may rely on a participant s written representation that the financial need cannot be satisfied by (1) insurance reimbursement (2) liquidation of the participant s assets (3) discontinuing salary deferrals to the Plan (4) by other distributions or non-taxable loans from this Plan or any other or (5) by borrowing from commercial sources on reasonable commercial terms; c. The participant has taken all other payments available under the Plan; and d. The participant cannot make salary deferral contributions to the Plan for six months.

23 13 Provide participant with Hardship Withdrawal Form and Special Tax Notice Regarding Plan Payments upon request. Request appropriate documentation from the participant regarding the hardship request. Review, approve, and sign the original Hardship Withdrawal Form. Upload a copy of the form to Alerus and retain the original for your files. Alerus Provide Hardship Withdrawal Form and Special Tax Notice Regarding Plan Payments. Process distribution as soon as possible after receipt of completed Hardship Withdrawal Form. Mail withdrawal check directly to the participant. Mail IRS Form 1099-R directly to the participant in January of the year following the distribution and report data to the IRS. Forms/Documents/Brochures Hardship Withdrawal Form Special Tax Notice Regarding Plan Payments Form 1099-R

24 14 G. Loans Plans allowing loans will have a formal Loan Policy that should be referenced for specific loan rules. If the Plan permits loans, a participant (with spousal consent, if applicable) may request a loan by completing and signing a Loan Application. Alerus also offers Online Loans as an option for certain plans. Plans with Joint and Survivor benefits, or those that are open-ended with regard to how a loan is withdrawn, are not able to use this service. Once a Plan is approved, the receives Online Loan Instructions. Participants requesting Online Loans are asked to review the Online Loan Agreement before submitting their request. General Loan Rules Eligibility: All active participants are eligible to apply for a loan. Loan Amount: The loan amount cannot exceed 50% of the participant s vested account balance, to a maximum of $50,000. Loan Terms: The term cannot exceed five years, except for loans used to purchase the participant s principal residence. Rate of Interest: Refer to the Plan s Loan Policy to establish the appropriate interest rate. Loan Repayments: Loan repayments must be made by payroll deduction. If payments are not made, the loan will be considered in default and the outstanding loan balance will be considered taxable income to the participant. Terminated Participants with Loans The Loan Policy will state if a loan becomes payable at termination of employment. If the loan becomes payable upon termination of employment and a terminated participant does not repay the outstanding loan balance within the number of days stated in the Loan Policy, the outstanding loan balance will be defaulted and considered taxable income to the participant. The will instruct Alerus to default the loan and issue an IRS Form 1099-R to the participant reflecting the deemed distribution. If the Loan Policy allows terminated participants to continue loan payments, the must include these repayments with the regular payroll deposit to the Custodian and itemize the repayments on the payroll detail submitted to Alerus. Personal checks from participants are not accepted by Alerus. Any loan outstanding at distribution will be automatically defaulted, regardless of whether the Loan Policy allows for terminated participants to continue loan payments.

25 15 Provide participant with a Loan Application upon request. Review, approve, and sign the original Loan Application. Refer to the Loan Policy for provisions applicable to the Plan. Forward a copy of the Loan Application to Alerus and retain the original for your files. Upon receipt of a copy of the loan documents from Alerus, set up regular, automatic, loan repayment deductions on an aftertax basis from the participant s paycheck and submit repayments to Alerus via contribution upload. Routinely monitor loan payments. Delinquent loan payments can be viewed by generating a report in ARS Online. Notify Alerus of any participant loan that is in default via completion of the Loan Default Form. Alerus Provide the Loan Application. Process loan as soon as possible after receipt of a copy of the completed Loan Application. Prepare the Promissory Note. Mail loan documents and check directly to the participant and provide a copy of the loan documents to the. Hold loan as a Plan asset until the loan is paid off, distributed, or defaulted by a terminated participant. Periodically remind to review loan status, with instructions on how to default a loan. Provide the Loan Default Form. Issue IRS Form 1099-R reflecting the deemed distribution based on instruction from the via a completed Loan Default Form. Forms/Documents/Brochures Loan Application Promissory Note Loan Default Form Loan Policy

26 16 H. Rollovers Into the Plan A rollover is a transfer of qualified retirement money by an employee into the Plan from another eligible plan or IRA. An employee can transfer qualified money into the Plan only if the Plan Document allows rollovers. Rollover Acceptance Conditions An employee wanting to transfer funds into the Plan must complete a Rollover Form. Rollovers are generally accepted if: a. The direct rollover is from another qualified retirement plan or IRA. b. The rollover is deposited within 60 days of receipt of the distribution from the eligible Plan Sponsor plan. An active participant should provide a completed Rollover Form to the. The Plan Sponsor should review and sign the Rollover Form prior to forwarding a copy to Alerus. The rollover is deposited according to the participant s future investment elections. Rollover for Ineligible Participant Some plans allow employees to make rollover contributions prior to meeting eligibility requirements. If the employee is not yet eligible to participate, the employee is required to complete an Enrollment Form and should write Rollover Only Currently Ineligible to Participate at the top of the Enrollment Form. This ensures that the rollover is properly credited when it is received by Alerus and deposited into the employee-elected funds. The employee should also complete a Beneficiary Form.

27 17 Review the completed Rollover Contribution Form and verify that the rollover assets are being transferred from a qualified source. Ensure the check is made payable to Alerus FBO: Plan and Participant prior to mailing the check to Alerus. Review the completed Enrollment Form and Beneficiary Form, if applicable. Sign and retain the original form(s) for your files. Mail a copy of the Rollover Form and Enrollment Form, if applicable, to Alerus. Alerus Provide the Rollover Contribution Form. Invest the rollover, as directed by the participant/employee, upon receipt of all required documentation. Forms/Documents/Brochures Rollover Contribution Form Enrollment Form (for non-participating or ineligible employees) Beneficiary Form (for non-participating or ineligible employees)

28 18 I. Qualified Domestic Relations Order (QDRO) In general, benefits under a qualified retirement plan cannot be assigned. In other words, the benefits cannot be reached by creditors or used as collateral for a loan. An exception to this is a court order that assigns benefits for the support of a former spouse or child. This court order is called a Domestic Relations Order (DRO) and will be issued when a participant is divorcing their spouse or in similar situations. Determining Whether a Domestic Relations Order is Qualified The is responsible for reviewing the Domestic Relations Order for completeness and determining, within a reasonable period of time, whether or not it conforms to the provisions of the Plan. The is responsible for promptly notifying the participant and alternate payee that the Order has been received and must inform them of the Plan s procedures for review. If the Domestic Relations Order has been determined to be complete and in accordance with the Plan s provisions, the can then make a determination that the Domestic Relations Order is qualified. The participant and alternate payee must be notified of this determination. A Domestic Relations Order must be qualified before the can authorize a distribution.

29 19 Notify Alerus of a pending Domestic Relations Order. Review the Plan s QDRO procedure and determine whether the court order is qualified in accordance with the Plan Document and QDRO Procedure. Provide alternate payee with the Alternate Payee Benefit Form and Special Tax Notice Regarding Plan Payments. Complete the QDRO Determination Checklist. Return a signed copy to Alerus along with a copy of the QDRO and the completed and signed Alternate Payee Benefit Form. Reference Section E for more details if a distribution is to be made to the alternate payee. Alerus Provide QDRO Determination Checklist. Process the QDRO upon receipt of the 's direction. Forms/Documents/Brochures QDRO Determination Checklist QDRO Procedure Alternate Payee Benefit Form Special Tax Notice Regarding Plan Payments

30 20 J. Highly Compensated and Key Employees In order to perform the required Internal Revenue Code (IRC) tests, employees need to be classified as: Highly Compensated Employee (HCE) or Non-Highly Compensated Employee (NHCE) Key or Non-Key Employee Family Members of Owners Officers Identifying HCEs An HCE includes an employee who: a. Is a greater than 5% owner (subject to attribution rules) during either the current or preceding year; or b. Had compensation from the greater than the amount identified in IRS 414(q) during the preceding plan year. See Administrative Reminders for the current amount. Identifying Key Employees Key employees consist of employees who at any time during the year are: a. More than 5% owners (subject to attribution rules); b. More than 1% owners whose compensation exceeds $150,000; or c. An officer receiving more than the amount identified in IRS 416(i) as plan year compensation. See Administrative Reminders for the current amount. The number of key employees based on officer status is limited to the lessor of (a) 50 employees or (b) the greater of three employees or 10% of all employees. An employee is an officer if they have the duties of an officer even if they do not have the title of an officer.

31 21 Complete an annual Employee Census Data File, Compliance Questionnaire and Ownership and Officer Information and return them to Alerus on a timely basis. Alerus Utilize data received from in Plan testing.

32 22 K. Plan Testing IRC requires testing of qualified plans to ensure they do not discriminate in favor of highly compensated or key employees. Refer to your signed Services Agreement for a list of tests Alerus prepares for your Plan. A brief summary of each annual test follows, with more detail provided throughout this section. Test IRC 402(g) Calendar Year Deferral Limit IRC 415 Annual Addition Limit IRC 416 Top Heavy Test IRC 401(k) Actual Deferral Percentage (ADP)Test IRC 401(m) Actual Contribution Percentage (ACP) Test IRC 410(b) Minimum Coverage Test IRC 404 Contribution Deduction Limit Test Description The amount of salary deferrals that may be made in a calendar year. The is responsible for completing this test. Allocations to participants may not exceed the lesser of: 100% of gross compensation or the IRC 415 limit, adjusted annually for cost of living. A plan becomes top heavy if the key employees have more than 60% of the total plan assets. Salary deferrals made by the HCEs may not exceed a certain percentage of the salary deferrals made by NHCEs. Matching contributions and/or after-tax contributions made to HCEs may not exceed a certain percentage of the contributions made to NHCEs. The percent of NHCEs benefiting under the Plan must be at least 70% of the percent of HCEs benefiting under the Plan. Testing is required for each type of contribution source (e.g., deferrals, match, profit sharing, and forfeiture allocations). s may take a maximum deduction of 25% of total compensation for plan(s). This calculation is based on the fiscal year of the ; therefore, this test is the responsibility of the. IRC 402(g) Calendar Year Deferral Limit Test: A participant may elect to make salary deferral contributions to the Plan. See the Administrative Reminders for the current limit. The Plan Document may allow catch-up contributions in excess of the deferral limit for employees age 50 and over as discussed in Section D. Test Failure: If a participant contributes more than the calendar year deferral limit, the excess should be returned by April 15 of the following calendar year. This excess will be included as income to the participant in the year the deferral was made. Participants should be made aware of any excess deferral as soon as possible as it affects their individual tax return. Completion of Test: The is responsible for monitoring this limit, along with their payroll provider. If it is determined that contributions need to be returned, Alerus should be notified by March 1.

33 IRC 415 Maximum Annual Addition Test: The maximum amount that can be allocated to any one participant in each plan year is the lesser of 100% of gross compensation or the IRC 415(c) limit. This includes all contributions and forfeitures except for catch-up contributions. If the maintains more than one defined contribution plan, the contributions must be combined. Test Failure: The Plan Document will govern how to process any allocations in excess of the maximum annual addition amount. Completion of Test: Alerus will review this limit only if administering all the defined contribution plans a sponsor maintains. IRC 416 Top Heavy Test Test: If the key employees balances are more than 60% of the total Plan assets, the Plan is considered top heavy. Top Heavy Determination: If a plan is top heavy, the may be required to make a minimum contribution for non-key employees. The minimum contribution is the lesser of 3% of compensation or the highest percentage allocated to the account of a key employee. Salary deferrals are included in determining the amount allocated to the account of a key employee. Alerus will perform this determination at the end of the plan year, which will apply to the next plan year. Alerus will request the information necessary to perform this test annually on the Annual Compliance Questionnaire and Ownership and Officer Information forms. IRC 401(k) Actual Deferral Percentage Test Test: The average ADP Test of HCEs can only exceed the average ADP of NHCEs within certain limits. There are two parts to this test. A Plan must pass one of these tests: a. The ADP of the HCEs cannot exceed 125% of the ADP of the NHCEs; or b. The ADP of the HCEs cannot be more than the lesser of (1) 2% higher than the ADP for the NHCEs or (2) no more than two times the ADP for the NHCEs. The following table illustrates these tests: ADP for NHCEs Maximum ADP for HCEs Test 1 % 2 % x 2 2 % 4 % + 2 % 3 % 5 % + 2 % 4 % 6 % + 2 % 5 % 7 % + 2 % 6 % 8 % + 2 % 7 % 9 % + 2 % 8 % 10 % + 2 % 9 % % x 125% 10 % % x 125% 11 % % x 125% 12 % 15 % x 125% 23

34 Test Failure: If the Plan fails this test, the excess contributions and applicable gain/loss must be returned to HCEs. The return of these contributions is taxable income to the employee in the year distributed. If excess contributions are returned beyond 2½ months after a plan year end, the Plan Sponsor is required to pay a 10% excise tax to the IRS. IRC 401(m) Actual Contribution Percentage Test Test: This test compares matching contributions and any after-tax voluntary contributions of the HCEs to those of the NHCEs. The same tests that are described in the ADP test above must be passed based on the matching and voluntary contributions. Test Failure: If the Plan fails, the vested portion of the excess contributions, plus earnings, must be returned to HCEs. The non-vested portion of the excess contributions, plus earnings, will be forfeited in accordance with the Plan Document. The return of these contributions is taxable income to the employee in the year distributed. If excess contributions are returned beyond 2½ months after a plan year end, the is required to pay a 10% penalty to the IRS. Completion of 401(k) and 401(m) Tests: Alerus will perform these tests if the necessary data is provided by the in a timely manner. Generally the information required is based on the entire plan year. The information needed to perform the tests is outlined in the annual Census Data File, Compliance Questionnaire and Ownership and Officer Information. To avoid potential penalties applicable to the, excess contributions must be returned by the deadline. IRC 410(b) Minimum Coverage Test Test: A Plan satisfies the Ratio Percentage Test if the percentage of the NHCEs benefiting under the Plan is at least 70% of the percentage of the HCEs benefiting under the Plan. Testing is required for each type of contribution source (e.g., deferrals, match, profit sharing, and forfeiture allocations). Test Failure: The Plan Document will govern the correction of a test failure. Completion of Test: Alerus will request the information required to perform this test on the annual Compliance Questionnaire and Ownership and Officer Information forms. This test is required as part of the annual return for the Plan (Form IRS 5500). Alerus will prepare this test if we administer all plans of the and have all the required data. IRC 404 Contribution Deduction Limit Test: The maximum deduction a may take for all contributions to retirement plans, excluding deferrals, is 25% of total eligible compensation. The calculation is based on the Plan Sponsor s fiscal year. Test Failure: A 10% penalty is due to the IRS on contributions over the deductibility limit. IRS Form 5330 must be filed by the for any contributions in excess of the deductibility amount. Completion of Test: Upon the s written request, Alerus can work with you and your accountant to complete this test. 24

35 25 Complete the annual Employee Census Data File, Annual Compliance Questionnaire, and Ownership and Officer Information. Return the information to Alerus in a timely manner. Notify Plan participants if adjustments for test corrections are necessary. Alerus Prepare tests based on data received. Notify of test results and advise if refunds are necessary. Process refunds as required.

36 26 L. Investing Plan Assets Participants in your Plan typically direct the investment of their accounts to the various investment funds available. These investment funds include stable income funds and mutual funds invested primarily in stocks and/or bonds. The chooses which funds will be available under the Plan. The investment fund choices are listed on the Enrollment Form. Investment Resources Participants are provided with numerous resources to help them make investment decisions. Refer to Section C for account balance realignment and investment election procedures. Investment Updates Alerus will provide updated reports on the Plan s investment funds periodically. These materials may be copied and distributed to participants and beneficiaries.