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Safe Harbor

Department of Labor Safe Harbor Requirements

On September 28, 2004, the Department of Labor (DOL) published final regulations providing plan sponsors a safe harbor for rolling over plan distributions to IRAs. In order to meet the safe harbor regulations for ongoing retirement plans, the present value of the participant’s vested account balance may not be more than $5,000, or, if the plan so provides, $5,000 plus amounts and earnings rolled over from other plans. Other safe harbor requirements include:
 

• The plan fiduciary must enter into a written agreement with an IRA provider addressing the initial investment, services and related fees and expenses.
• The initial investment product must be offered by a state or federally regulated financial institution, such as a bank, trust company, credit union, insurance company or ’40 Act Investment Company.
• The initial investment product must be designed to minimize risk, preserve principal, provide a reasonable rate of return and maintain liquidity.
• The fees and expenses cannot exceed those charged by the selected IRA provider for its other comparable IRAs.
• The plan sponsor must provide information about the Automatic Rollover provider and the investment products offered to all participants in either a Summary Plan Description (SPD) or Summary of Material Modification (SMM). 

Plan fiduciaries are not required to monitor the IRA provider and have no responsibility for the IRA provider’s compliance. For a white paper on the DOL's requirements affecting retirement plans, click here.