ERISA and YOU!
Staying current with the ever-changing and evolving laws, rules and regulations for managing and administering a retirement or health benefit plan is a full-time job. The penalties for non-compliance are costly and harsh. The PPSAFI team can help ensure that you avoid compliance issues and minimize your tax liabilities.
What Exactly is ERISA?
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement and health benefit plans in private industry. ERISA does not require any employer to establish a plan, it only requires that those who establish plans must meet certain minimum standards.
ERISA covers retirement, health and other welfare benefit plans (e.g., life, disability and apprenticeship plans). Among other things, ERISA provides that those individuals who manage plans (and other fiduciaries) meet certain standards of conduct. The law also contains detailed provisions for reporting to the government and disclosure to participants. There also are provisions aimed at assuring that plan funds are protected and that participants who qualify receive their benefits.
To learn more about the history of ERISA and the reason behind its enactment, read Gina’s article entitled What Does a Studebaker and a Fiduciary Have In Common?
Model Notice of Multi-employer Plan in Critical Status:
The Pension Protection Act of 2006 (PPA) amended ERISA and the IRC to require that sponsors of multi-employer defined benefit pension plans that are in endangered or critical status provide notice to participants. The Model Notice is intended to facilitate compliance with this notification requirement.
Meeting Your Fiduciary Responsibilities
To meet their responsibilities as plan sponsors, employers need to understand some basic rules, specifically those outlined in ERISA. ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries). This publication, Meeting Your Fiduciary Responsibilities – US Department of Labor, provides an overview of the basic fiduciary responsibilities applicable to retirement plans under the law.
Selecting An Auditor For Your Employee Benefit Plan
Federal law requires employee benefit plans with 100 or more participants to have an audit as part of their obligation to file the Form 5500. This booklet, Selecting An Auditor For Your Employee Benefit Plan, will assist plan administrators in selecting an auditor and reviewing the audit work and report.
Selecting and Monitoring Pension Consultants
ERISA requires that fiduciaries of employee benefit plans administer and manage their plans prudently and in the interest of the plan’s participants and beneficiaries. In carrying out these responsibilities, plan fiduciaries often rely heavily on pension consultants and other professionals for help. Findings included in a report by the SEC released in May 2005, however, raise serious questions concerning whether some pension consultants are fully disclosing potential conflicts of interest that may affect the objectivity of the advice they are providing to their pension plan clients.
• Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans
• Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans –Timing of Annual Disclosure
• Service Provider Disclosures Under Section 408(b)(2)& 404(a)(5)
• Lifetime Income Illustration
For 401(k) Plans
Meeting Your Fiduciary Responsibilities:
To meet their responsibilities as plan sponsors, employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage an employee benefit plan and its assets, commonly referred to as fiduciaries. This publication, Meeting Your Fiduciary Responsibilities – US Department of Labor, provides an overview of the basic fiduciary responsibilities applicable to retirement plans under the law.
• General Fiduciary Compliance Assistance
For Small Employers
Small Business Health Care Tax Credit for Small Employers:
Are you a small business or tax-exempt organization that pays at least half the cost of single health insurance coverage for your employees? If so, you may qualify for a new tax credit available as part of the Affordable Care Act.
Automatic Enrollment 401(k) Plans:
This booklet, Automatic Enrollment 401(k) Plans for Small Businesses, provides an overview of automatic enrollment 401(k) plans, which can increase plan participation and make it easier for employers to withhold employee contributions and select investments for those contributions
• The Department of Labor (DOL) and the American Institute of Certified Public Accountants developed a paper entitled “Independence Rule Comparison” to
assist small business retirement plans.
• Choosing a Retirement Solution for Your Small Business is a pamphlet describing the retirement savings options available to small businesses
The Choosing a Retirement Solution for Your Small Business video, https://www.youtube.com/watch?v=lfS1KCdHrEM, helps small employers and accountants
understand the various options for providing a retirement program through four real-life experiences.
•The Abandoned Plan Program
• Voluntary Correction Program
•Voluntary Fiduciary Correction Program
•Delinquent Filer Voluntary Compliance Program
What is benchmarking? Basically, its keeping a barometer, a guideline, that helps keeps your plan on track. Benchmarking is the process of reviewing and evaluating your company retirement plan. It takes a look at what you are offering your employees today, making an apples-to-applies comparison to other plans of similar size and value, and determining whether or not it is appropriate or if changes need to be made to improve specific aspects of the plan to maximize performance and reduce costs. The only sure way to know that a plan is on track and if the fees you’re paying are reasonable is through a proper and thorough benckmarking process every
1 to 3 years.
A Plan Sponsor or Fiduciary has several responsibilities, but one of the best ways to become an effective sponsor is to benchmark. Benchmarking criteria includes:
• Participation rate
• Contribution and deferral rates
• Maximizing company match
• Utilization of catch-up contributions
• Utilization of goal setting tools
• Analysis of fees from every provider
• Pricing your plan with other providers
Benchmarking your plan design is another important part of the process, especially if your plan document is a prototype, very common with bundled providers. Most plan documents can be amended or restated to add customized features. Plan design benchmarking criteria includes:
• Automatic Enrollment/Auto Escalate
• Safe Harbor (Non-Elective or Match)
• New Comparability/Age-Weighted (Profit Sharing)
• Loans/Hardship Withdrawals
• Catch-Up Contributions
• Roth Deferrals
• Investment Options/Qualified Default Investment Alternative (QDIA)
• Participant Directed Accounts
Benchmarking with the strategies detailed above will ensure that you, as a Plan Sponsor, is diligently performing your role as a fiduciary, as outlined in ERISA, without risk or liability, and help ensure that you will have a successful performing retirement plan.
Investment Policy Statement (“IPS”) and Education Policy Statement (“EPS”)
An IPS is a document that provides fiduciaries with a framework to help them detail the standards by which investment decisions are made and monitored, and investment performance is measured under the plan. An IPS is a statement generally between an investor and the investment manager which specifies the investment goals and objectives of a client and outlines the strategies that the manager should employ to meet those objectives. It should include:
• Outline a plan’s investment goal and objectives
• Identify the investment alternatives
• Document the process and criteria for selecting and monitoring the investment options and/or managers
• Highlight the types of educational and advisory services available to help employees make decisions
An IPS can assist fiduciaries/plan sponsors demonstrate prudence with regards to how the investment options offered under the plan were selected and monitored. This could prove advantageous if the plan is ever audited by the DOL.
All companies should have an investment policy statement (IPS). While it is not mandatory, it is highly recommended by the Department of Labor (“DOL”) and one of many items that will be requested during a DOL Audit.
An EPS is a policy or a roadmap designed to provide a specific plan of action for enrollment meetings, education and participant communication. It should include:
• Overview of the plan
• Education goal – identified the plan‘s challenges (i.e., contribution rate) and how they will be addressed
• Education objective – identifies the type of campaign being rolled out to help employees understand their retirement objectives and investment options.
• Education strategy - identifies how the education program will be rolled out and measured
• Educational calendar – outlines a year-long schedule for various campaigns
• Roles and responsibilities - identifies who will deliver and measure the educational program
• Results - measures a campaign effectiveness against pre-determined metrics
Also, if used together, an IPS and EPS can complement each other. For example, the following information should be in an EPS: Financial planning and strategies, such as diversification principles; Asset Allocation concepts, such as target date and risk-based investment options; Relevance of performance vs. returns; Investment fees; Retirement savings/planning calculators. If these items and all the above are documented in the EPS, a plan fiduciary can demonstrate the prudent steps they took to provide employees with the information and support they needed to help then make informed decisions.
• As a plan sponsor, one of your fiduciary duties is to obtain an independent plan review of your retirement plan by a qualified expert outside of your current
• An independent reviewer may see something that has been overlooked by others, which could save money for you, your employees and may improve benefits.
Our Compliance Review Packages are designed to keep your 401(k) on track.
A comprehensive plan review and benchmarking is necessary as it compares the following attributes of your plan to marketplace standards:
• Total Fees (Management, Adviser, Administrative, Record keeping and Participant)
• Quality and diversity of your investment fund line-up
• Competitiveness of your plan design and features
• Participant success with enrollments and investments
• Plan’s level of fiduciary compliance
What are the Benefits of the Benchmarking Results:
• Determines if your plan is on track and needs little or no adjustments.
• Determines if your plan is mostly on target, but there may be some small adjustments that should be made.
• Determines if your plan has some major areas that could be improved and/or compliance areas that need attention.
Whatever your results, the plan review, benchmarking report and minutes of the meeting are kept in your fiduciary file. As a part of your ongoing fiduciary responsibility, you should review your plan every 2 to 3 years.