That’s Not Our Policy

Don’t you hate it when you ask a question, and the response is: “That’s not our policy?”  Me, too. Unfortunately, that answer, in various forms, gets used a lot in service industries. In retirement plans, that can be the right answer, but more often than not, that’s a (bad) substitute for saying “There’s some reason for this, but I don’t know what it is.” 

So, here are some reasons why a retirement plan administrator might say you can’t do what you want, or you might have to do something that you’d rather not: 

1. Retirement plans are governed by a lot of laws and regulations. The IRS and the DOL both have their say in what happens in retirement plans. The SEC even gets itself involved. I’ve seen various state payroll laws come into play. Because employers and employees get tax breaks for 401(k) contributions, they are highly regulated.
2. The type of employer makes a difference in what can and can’t be done. For example, a governmental employer can’t have a 401(k) plan, and a sole proprietorship can’t have an Employee Stock Ownership plan. Controlled groups (multiple entities with common ownership) are a particular headache for employers to understand.
3. The type of plan makes a difference. A 403(b) plan does not have an ADP (Actual Deferral Percentage) test, while a 401(k) plan does. On the other hand, 401(k) plans can have a much wider range of investments than a 403(b) plan can have. Nonqualified plans can be limited to key employees, but don’t have the tax advantages that qualified plans have.
4. All plans are governed by written plan documents that spell out how the plan is to be operated. Not all documents are written with the same provisions, so an action that’s allowable in one plan may not be allowable in another. Also, documents allow for interpretation of some provisions, and the Plan Administrator has to be consistent in that interpretation.
5. Plans’ investments, be they mutual funds, variable annuities or individual stocks and bonds, have regulations that they have to follow.
6. The systems a company has can make a difference; if it can’t be done systematically, it’s probably not going to be done.
7. Resource limitations come into play. An activity may be possible, but it may not be reasonable to do because of the cost of getting it done.
8. Customer preferences enter into what is or is not done.
9. Finally, there are those times when a company establishes its policies on how certain circumstances are supposed to be handled. 

A good 401(k) plan administrator not only understands each of these factors, he also knows how they interact with each other. For example, something may be technically allowable under the Internal Revenue Code, but can’t be done on the administrator’s computer system, and would require a lot of resources to be done by hand. As a result, the administrator says it won’t perform the requested function, or uses the shorthand “that’s not our policy.” A really good administrator can explain why it won’t do the function. A really, really good one can explain it in terms that make sense to the average client. 

When I am asked a question about one of our 401(k) plans, I go through a kind of analysis in my mind. First, I make sure I understand what the situation is with the employer or plan sponsor. I then consider the plan type and the document provisions. Systems and resources come next, and then I look at preferences and policies. I can then decide what options, if any, are available to give the client what it wants. By doing my analysis this way, I can do more than just say it’s not our policy; I can say why something can or can’t be done.

Don’t you hate it when you ask a question, and the response is: “That’s not our policy?”