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No rush! More time for 401(k) and 403(b) disclosures

Tag Archives: 401(k)

No rush! More time for 401(k) and 403(b) disclosures

revise deadline for annual investment alternative noticeLast year, plan sponsors had to provide annual investment disclosures to participants by August 30 with an annual (within 12 months) distribution going forward. But in 2013, the DOL is giving a one-time delay in distributing the information to make it more convenient for plan sponsors to coordinate the timing of disclosure with other notice requirements. This year, plan sponsors have an additional six months (within 18 months of the previous distribution). And if you have already completed your 2013 annual participant disclosure, then you can use the extra time for your 2014 notices. The annual requirement is relevant to plans whether they operate on a calendar-year or fiscal-year basis, so the one-time 18 month flexibility lets you determine the best timing for your plan.

This disclosure covers the 2010 EBSA requirement to publish detailed investment-related information to plan participants and beneficiaries about the plans’ designated investment alternatives.

It would be a good idea to look and your calendar and coordinate the distribution with other notices, such as with individual benefit statements or the Qualified Default Investment Alternative. Such a grouping together not only saves money on postage, it lets you determine the timing when the information is most relevant, such as year-end or open enrollment.

Also keep in mind that while many third party administrators prepare the notices for plan sponsors, it is the plan sponsor’s responsibility to comply and to ensure accuracy.

Please contact me, Dalton Cox, if you have specific questions about 401(k) compliance issues.


‘Heads Up’ for Fiduciaries

BenefitsPro.com has an excellent article that will be helpful for plan managers and all fiduciaries of retirement plans. With a new fiduciary standard on the horizon, be sure to read 8 things to know about fiduciary liability.

Q&A for Filing Form 5500

Form 5500 Q&AAs you prepare to file Form 5500 by the July 31 deadline, here are answers to some of the questions you may have.

Do I need to file Form 5500?

Yes, if you have 100 or more participants (including spouses or other dependents) at the beginning of your plan year, you must file Form 5500 with the related schedules.

What benefit plans require Form 5500?

Be sure to file for ALL benefit plans including your company’s 401(k) or 403(b), life and/or disability insurance, medical, dental, or vision plans. (Note that the rules are different for government or church plans.)

Is there an easier way to file?

If you have multiple plans that require form 5500, ERISA allows for a ‘wrap document’ that describes all of the plans in one document. Such a document will save you time and money by only filing one document. You’ll want to consult an attorney who specializes in ERISA issues to make sure that the language meets the ERISA requirements. (more…)

De-Risking Your Plan

De-Risking was on the agenda of the recent ERISA Advisory Council meeting on Employee Welfare and Pension Benefit Plans. Without adding regulations, the council agreed that it is important to mitigate risk with regard to plans. While the spirit of the discussion may be aimed at pension obligations and defined benefit plans, the principles also hold true for other types of retirement plans.

Here are four suggestions of ways that you can minimize risk for both your participants and for yourself as a responsible fiduciary:

1. Review your plan document at least annually. Make sure that the parameters are meeting your needs and that any service providers or third party administrators are following the plan. Review investment selections and the Qualified Default Investment Alternative.

2. Establish or maintain a representative retirement plan committee. A committee of plan participants who represent different interests provides perspective and spreads buy-in for decisions made regarding the plan. The committee should meet no less than quarterly, and someone needs to be appointed to take minutes at the meeting. Minutes must be available for review by all plan participants.

3. Understand and justify plan expenses. Much attention is placed on plan fees, and much is misunderstood. As a fiduciary, you minimize risk by being able to communicate and disclose expenses in a way that makes sense to participants.

4. Obtain fiduciary liability insurance. Such insurance may be a rider to general liability coverage, and is worthwhile to protect all those with fiduciary responsibilities. While you can’t be sued by a participant who loses money, you must be fully compliant with ERISA regulations.

You can contact me, Dalton Cox, if you have specific questions about your fiduciary responsibilities.

5 401(k) Details That Can Kick You Out of Compliance

Compliance-Check-ListAs an auditor, it’s my job to look at every aspect of a 401(k) plan to ensure ERISA compliance that in turn protects employee retirement funds. Here are five details to watch to make sure that your plan stays in compliance:

  1. Pre-tax contribution limits – A percentage of income contributed to a 401(k) plan can easily exceed the annual limit for highly-compensated employees. Be mindful that $17,500 is the pre-tax limit for 2013. However, if an employee is over age 50 by the end of the plan year, the limit is an additional $5,500, or $23,000.
  2. Pre-tax contribution deductions – Even though income is deferred into a 401(k) plan for taxable wages, employers must still take out Social Security, Medicare, and federal unemployment taxes. The employee pays federal (and state, if applicable) income tax on the amount after the money is withdrawn from the account. (Unless the account is a Roth IRA.)
  3. Roth IRA & traditional IRA management – Roth IRAs require income tax payments on the amount, and traditional IRAs do not. If you offer both types of plans, make sure that your accounting is correct.
  4. Loans to participants – If your company is willing to loan an employee use of IRA funds, you must charge a reasonable rate of interest for the privilege. Typically, the interest charged is the Prime Rate, or Prime plus one or two percent.
  5. Discrimination in favor of highly compensated employees – If 60% of the total amount of funds in the plan is held by high earning employees, then the plan is considered discriminatory against lower wage employees. The plan must meet minimum contribution requirements or else use a safe harbor plan that does not have discriminatory evaluation.

If you have specific questions regarding the details of your plan, please contact me, Dalton Cox. Answering your question will likely benefit other readers as well.

What to include in a Record Retention Policy – Part 2 of 2

KONICA MINOLTA DIGITAL CAMERAYou have two types of records to retain – plan records and employee participation records. Many of the plan records, such as Form 5500, fall under the rule of holding for six years after the filing date of the documents based on the information which they contain, or six years after the date on which such document would have been filed but for an exemption. The supporting documents for your plan that you must keep for six years include: worksheets, vouchers, receipts, and applicable resolutions. Having these documents fulfills ERISA Code 107.1027, which states that the information may be required to verify, explain, or clarify information about the plan.

Plan records that must be kept indefinitely include: the original plan document and amendments, summary plan descriptions and modifications that you provided to plan participants, ownership and asset documentation, and the IRS determination letter (most current).

Employee records, according to ERISA 209.1059, must be maintained to determine benefits due or which may become due. This is where the burden falls, because an employee in his or her 20s will not retire for 40 or more years. Be sure to keep the applicable dates for hire, termination, re-hire, and retirement. Also keep number of years of service or hours worked, plan distribution dates and amounts with supporting documentation, spousal consents, Forms 1099 and W-4P. Because the employee records will likely be stored electronically, the DOL requires electronic copies to be easily convertible to paper, have safeguards to retain accuracy, and have the ability to index, retrieve, and preserve the records. You may dispose of the paper records when you meet the electronic requirements.

If you have any questions about record retention, please contact Dalton Cox.


4 Things to Know Before You Hire an EBP Auditor

If you have over 100 participants in your employee benefit plan, then an annual audit is mandated. But who you choose to do your audit will make a difference in the quality of audit you receive. Here are 4 guidelines to help you make a choice that’s right for your company:

1. Quantity of plan audits indicates knowledge and experience. Some firms use employee benefit audits as fill-in work, and may not be familiar with the ERISA requirements. The more audits performed by your CPA specifically for employee benefit plans, the smoother (i.e. less time-consuming) you can expect the process to be.

2. Peer review of a CPA firm provides verification of professional competence. As a member of the AICPA (American Institute of CPAs), firms must have their practice reviewed every three years by an outside CPA firm. Such as review, when it includes an Employee Benefit Plan Audit, is a testimony to professional and ethical standards. This is especially important since you, the plan fiduciary, are ultimately responsible for the audit results.

3. A dedicated Employee Benefit Plan Audit team can offer value beyond the requirement. When a CPA firm is dedicated to Employee Benefit Plans, the service you receive is a priority because they want this type of work and want to keep it annually. Also, specialized knowledge regarding Employee Benefit Plans brings expertise to the audit report. You can expect recommendations for operational efficiencies and awareness of changes ahead regarding compliance.

4. Evidence of continuing education indicates current knowledge of the regulations. A CPA firm that invests in continuing training better understands the operations and fiduciary responsibilities for EB plans. Your position is protected when you’re certain that the CPA performing your audit is qualified.

Many companies look at the price of the audit to determine which CPA firm wins the bid. Consider the above qualifications in addition to price to make sure that your audit is performed correctly and protects your liability.

4 Ways to Compare Plan Fees

With a new year under way, plan fiduciaries may be shopping proposals to be sure that employees are getting the best retirement plan choices possible for the lowest fees. And while plan providers must disclose investment fees to clients, the fees do not have to be completely revealed in the proposal stage. Below are 4 ways to prevent fee surprises in the future for new plan offerings.

1. Request a disclosure from the provider regarding the method that fees are determined.
2. Ask if changes to investments can be made without approval from the plan administrator with full fee disclosure.
3. Beware of fees associated with managed accounts. You may elect to have the retirement plan accounts managed by a third party working directly with employees. However, the investment fees may be lower as a result. The appearance may be that the cost is significantly lower (due to reduced investment fees), but the cost may be higher in the end.
4. Ask about the use of target-date funds or proprietary funds. If these are part of the package, then ask for a breakdown of investments or a document of investment philosophy to be better able to predict the fees. Having a mix of passive and active index funds can hide fees.

In writing the warnings about fees, I want to be careful not to imply that any of the proposal tactics are deceptive. Fees are both inevitable and legitimate. However, when you look at several proposals, the calculations will likely all be based on different assumptions. Knowing the questions to ask and the different ways funds are presented makes you a better fiduciary for your retirement plan.

The birthday effect on retirement plans

Birthdays sneak up on all of us, but if you’re a plan sponsor, you have to pay attention to all of your participants’ birthdays to follow the age-related rules for contributions and distributions.

Here are some important birthdays to note:

  • Age 21 is the minimum age for most employer-sponsored retirement plans (except for SIMPLE IRAs).
  • Age 50 is the first year it’s possible to make catch-up contributions to IRAs or employer-sponsored plans that accept elective deferrals. For 2012 and 2013 tax years, the catch-up amount limit is $5,500.
  • Age 55 employees who leave their company and receive a distribution are not subject to the 10% additional tax on early distribution. (Regular income tax rates apply.)
  • Age 59 ½ employees who are still employed may take distributions and not be subject to the 10% additional tax on early distributions.
  • Age 62 is the year that pension plans may begin paying benefits even if the person has not left the company.
  • Age 65 employees must let employers know if they do not want distributions. Otherwise, benefits need to be paid starting within 60 days of the close of the plan year in which the employee turns 65, completes 10 years of plan participation, or ends employment with the company.
  • Age 70 ½ is the time when employees must accept required minimum distributions. Distributions begin April 1 in the year after turning 70 ½. Qualified plans may delay distributions until after retirement unless the participant has 5% or more ownership in the company.

As a year-end task, take a look at your birthdays in the coming year to see which of your employees will cross the milestones above. Then, you’re prepared to communicate with them about their options.

Do your homework: accountability for plan providers

We don’t want to think this will happen. But here’s a recent case in Texas that demonstrates the need to have strict accountability on providers of plan services. Two paragraphs from the Department of Justice news release:

Dallas Businessman Sentenced to 120 Months in Federal Prison for His Role in Conspiracies to Steal Pension Plans and Commit Health Care Fraud

“DALLAS – Oct. 31, 2012  Robert Hague-Rogers, 76, of Frisco, Texas, was sentenced yesterday afternoon by U.S. District Judge Sam A. Lindsay to 120 months in federal prison and ordered to forfeit $9,345,775, following his guilty plea in April 2012 to one count of conspiracy to commit theft or embezzlement from an employee benefit plan and one count of conspiracy to commit healthcare fraud. Hague-Rogers has been in custody since his pre-trial release was revoked by the Court on September 4, 2012. Today’s announcement was made by U.S. Attorney Sarah R. Saldaña of the Northern District of Texas.

According to the factual resume filed in the case, Hague-Rogers admitted that he executed both conspiracies by creating numerous single employer trusts to provide individuals with whole life insurance, death benefits and other post-retirement medical benefits. Hague-Rogers and others, without the knowledge and/or consent of the trusts, caused fraudulent and unauthorized loans to be made against the whole-life policies. He and his immediate family used the funds for personal expenses including leases of luxury vehicles, house payments and taxes, and private life insurance policies.”

This sad tale for the affected plan sponsors illustrates the need to have procedures in place for monitoring vendors. Ongoing accountability is needed in addition to checking the references and background of providers prior to engagement. Here is a checklist of items to track:

–          Plan fees

–          Performance according to the agreement

–          Internal controls at the service provider regarding employees, trades, cash management

–          Financial risk parameters

–          Vendor management changes

–          Collateral verification

Well documented accountability measures will prevent your company from being on the losing end of unscrupulous transactions.