457(b) Policies and Procedures: Best Practices

Governmental 457(b) plans can be complicated. But intimidating or not, says a recent blog entry, there are key elements that those who serve such plans need to make sure are there. 

In an entry in the Focus on Public Benefits blog, BB&K Law Partner Jeff Chang notes that such plans are “subject to myriad rules and requirements” present not only in the plan document, but also imposed by the Internal Revenue Code and IRS guidance, not to mention state law and regulations. 

But complicated as such plan documents can be, warns Chang, they still often are “just the beginning—the ‘quick-start guide.’” 

Chang suggests that when one looks closely at the plan document, one will soon see “many, many aspects of proper plan administration” insufficiently spelled out. Not all of those details are relevant to all parties, he notes; some are important for plan administrators and vendors, while others are helpful to participants and beneficiaries. 

Chang says that a plan will probably need policies and procedures that do the following.

Address: 

• plan documents; 
• records maintenance and retention;
• maintenance and update of participant information;
• participant enrollment;
• completion of deferral elections;
• beneficiary designations;
• spousal consents; and
• policies and procedures for locating lost or missing participants.

Explain: 

• how the plan will comply with ERISA Section 404(c) rules;
• unforeseeable emergency hardship distributions;
• how benefits are handled in the event of divorce;
• how the administrator will evaluate and make determinations concerning domestic relations orders;
• how and when participants can receive their benefits;
• what payment options may be available; and 
• what happens when a participant dies.

Identify:

• the party(ies) responsible for selecting the plan’s investment menu; and 
• the principles underlying investment selections.

Detail:

• participant loan procedures; and
• claims procedures.

Chang recommends customizing policies and procedures, and not simply relying on an “off the shelf” template. And, he adds, a plan will be more successful and useful if it has provisions that are “outward facing”—policies and provisions that explain to participants in simple language how aspects of the plan work.