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‘Heads Up’ for Fiduciaries

Tag Archives: Fiduciary Responsibility

‘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.

6 Steps to a Better Audit

Spring into action 3x3With spring, comes the annual Form 5500. To reduce audit costs and minimize interruptions, do these 6 things and make the process as painless as possible:

  1. Determine changes to the plan since the last audit. For example, have you revised the plan document in any way? Have you implemented any new procedures or policies? Providing a heads-up to the auditors means that they can address the issues without having to search and discover the changes.
  2. Ask the auditors for an advance checklist of items needed, and gather the materials before they arrive. Be sure to prepare a current financial statement.
  3. Review transactions for the prior year to anticipate questions from the auditor(s) about eligibility, contributions, loans to participants, and benefit payments.
  4. Look for possible red flags that you can address prior to the audit. Examples include prohibited transactions and nondiscrimination testing.
  5. Request all communication to go through one point of contact to minimize confusion and possible double work.
  6. Plan to tie up the loose ends and outstanding items while the auditors are onsite or shortly after they leave. Timely completion typically results in a lower bill.

For more tips on selecting the best auditor for your plan, see our list of helpful posts that talk about things you need to know. Remember that when you schedule your audit several months in advance, you have more flexibility in planning your dates. And, something about scheduling in advance moves the needed actions higher on your list of things to do. Please contact me, Dalton Cox, if I can answer any of your questions about 401(k) audits.

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.

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.

Good news from the DOL about fund disclosures

In response to push-back from the investment and plan fiduciary community, the DOL revised the rule calling for fund disclosures that was to take effect at the end of August, 2012. Plan fiduciaries were looking at significantly increased administrative duties to monitor investments within funds and disclose specific fees to plan participants.

The ruling was delivered in a Field Assistance Bulletin (FAB 2012-02) instead of through the process in which affected parties have the ability to offer comments and feedback prior to taking effect. With the impact of letters and meetings arguing against the new ruling, the DOL issued a revised Field Assistance Bulletin (FAB 2012-02R). The ruling discrepancy in Q&A 30 was replaced with Q&A 39. This is a great example of how making your opinions known can have an impact on revising rules when arguments are clear and well-presented.

The more practical, revised version of disclosure requirements does not prohibit the use of a brokerage window self-directed brokerage account, or similar plan arrangement in an individual account plan. In other words, the ruling is broader regarding designated investment alternatives (DIAs). A DIA depends on whether it is specifically identified as available under the plan (not individual investments within funds). And, when a plan consists of brokerage accounts, the fiduciary has an ERISA responsibility to provide a selection of DIAs. A plan fiduciary must be careful not to designate investment alternatives to avoid investment disclosures.

Bottom line – you need to continue to monitor the investment funds and fees, but you don’t need to micro-manage within funds.

For the exact language, see Q39.


The un-cashed 401(k) check dilemma

Un-cashed checks create a problem for 401(k) plan sponsors. The DOL mandates that funds technically remain part of the plan until the check is cashed. If the check is not cashed, the account is ongoing and must be credited with future earnings.

While it doesn’t seem logical that people would leave funds without claim, it is a common problem. Many employees leave companies without providing a forwarding address, and after future address changes, the paper trail is lost. Provisions for abandoned funds need to be included in the plan document. You have two options: restore funds to the plan after a designated time period, or search for participants and establish safe harbor IRA automatic rollovers for them. The IRS has a program that can help you search for participants. The Letter-Forwarding program protects the privacy of individuals, yet uses the resources of the IRS to deliver your communication. The inquiring company is not given the address.

You also need to specify in your plan document the ownership of the float earned on the plan assets. The float must be disclosed as a fee. At no time may the money go back to the employer instead of the plan. If a financial institution handles asset distribution for your plan, you will have to make sure that the transactions are completed, and be aware of incomplete transactions so that the funds remain on the books of the plan.

Terminating a plan creates additional issues, as a plan cannot terminate until all assets are distributed. Plan sponsors must take all steps possible to locate plan participants. If a participant never responds, then the fiduciary may distribute the funds to an IRA that qualifies for a safe harbor. Once safe harbor IRAs are established, the plan sponsor’s fiduciary duty is met and there is no longer any obligation to try to contact former employees. The funds are also no longer the responsibility of the plan.

Keeping the pencil sharp on recordkeeping for 401(k) plans

The vast majority of 401(k) plans do not perform recordkeeping in-house. Because service levels vary widely for the types of companies that perform recordkeeping, it’s a good idea to periodically evaluate your plan’s needs. Recordkeeping is part of fee disclosure, and having a bid process proves your fiduciary responsibility for your plan.

Here are descriptions of types of companies that provide recordkeeping:

–          Third-party administrators typically also handle administrative duties.

–          Recordkeeping firms focus specifically on recordkeeping.

–          Bundled service providers, such as mutual funds or insurance companies, may keep records as part of their service, or may sub-contract the recordkeeping.

Services to request from providers:

–          Records of contributions and distributions

–          Coordination with payroll

–          Crediting of investment earnings

–          Monitoring of employee deferrals and after-tax voluntary contributions

–          Monitoring of employer matching funds, qualified non-elective and profit sharing contributions

When you understand the services and extent of service needed based on your investment choices and numbers of participants, whether the investments are pooled vs. participant-directed, you can select the level of recordkeeping that is best for your plan and keeps fees relevant. Keep in mind, too, that even if you don’t want to change recordkeeping providers, you may be able to negotiate lower fees per participant based on these various factors. The point is to stay on top of the process and function.

Could your plan document disqualify 401(k) tax status?

When is the last time you updated your 401(k) plan document? Many plan sponsors file the document, only intending to update it with changes to investment offerings. But, it’s a good idea to keep the dust off that document – failure to update is one of the most prevalent and serious errors that can disqualify a 401(k) plan. Here are a few things to do and remember that will keep you in compliance:

–          Calendar a note to talk with your CPA to stay on top of tax law changes. You need to update your plan document whenever tax laws change that affect 401(k) plans or update every 5-6 years, whichever comes first.

–          Review your plan document to be sure that the plan is being operated according to the plan document. Don’t assume that your third-party administrator is following the plan.

–          Check for consistency between your summary plan description and the plan document. Pay particular attention to benefits, rights and features to be sure that the language in the summary matches the plan document.

If you find that you’re out of compliance, the IRS will let you self-correct via the Voluntary Correction Program.

Here are two other ways to stay in the clear and make your life easier:

–          Keep all of the following documents in one place: original plan document, plan amendments or restatements, adoption agreements, determination letters, IRS opinion letters, any other pertinent records related to the plan.

–          Retain original documents when changing relationships and contracts with investment companies or third party administrators.