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Ms. Andersen, founder and CEO of ERISAdiagnostics, was a Contributing Editor for the Pension Plan Fix-It Handbook formally published by the Thompson Publishing Group, Inc.
Many of the following articles were originally written for and published in the Thompson Publishing Group’s Pension Plan Fix-It Handbook. and is published/reproduced with the permission of the Thompson Publishing Group. We have made these articles available for download to our readers in PDF format.
Archived Articles
Sponsors using limited-scope audits should watch proposed audit changes
The American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB) recently issued a proposed Statement on Auditing Standards (SAS) that will affect all independent qualified public audits of employee benefit plans, especially limited-scope audits.
The 133-page exposure draft, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA,” was issued April 20. The proposed SAS changes are effective for audits of financial statements for periods ending on or after December 15, 2018.
The Importance of Retirement Plan Record Retention — Whose Job Is It Anyway?
A former participant calls an employer-sponsored retirement plan’s service center. He just turned 65; after working almost 20 years for the company, his service ended 24 years ago. He asks about his accrued pension benefit. The call center service representative tells him that there is no record of his service, and provides information on how to file a claim.
The former participant files a claim, providing information to the plan’s benefits committee.
Retiring Boomers, Closures, Mergers Lead List Of Good Reasons to Assess Distribution Process
Baby boomers are retiring in droves and beginning to collect Social Security. Many are receiving notices from Social Security that they may be entitled to retirement benefits from a former employer. As a result, employers must answer such inquiries about potential benefits.
In the years since these employees’ departure, some companies have gone through downsizing, restructuring, plan service-provider changes and internal payroll and HR system changes. Others have spun off or acquired divisions. At the same time, the service-provider market has changed through acquisition and dissolution. Is it really any wonder why certain plan administrative practices are not so seamless as they should be?
IRS Procedural, Letter Changes Reflect Shift To Audits From Reviewing Plan Documents
It appears that the IRS has begun channeling its resources to audits rather than reviewing retirement plan documents. As part of this refocus, the IRS has issued four pieces of guidance on determination letters.
The guidance:
- eliminates the five-year remedial amendment cycle system for individually designed plans. Determination letters for individually plans generally will be issued by the agency only upon initial qualification and termination;
- means expiration dates on determination letters issued before Jan. 4, 2016, are no longer operative;
- decreases Voluntary Correction Program fees in certain cases; and
- increases determination letter application fees in some circumstances.
IFEBP Survey Offers Behind-the-Scenes Look at Benefits Departments’ Approach
Do you wonder where your benefits department stands when compared with other companies’?
The International Foundation of Employee Benefit Plans 2015 survey (available online to IFEBP members only), “Corporate Benefits Departments: Staffing and Operations,” could provide benchmarks and offer some prudent tips. The survey includes responses from 343 human resources and benefits professionals representing employers of all sizes (from fewer than 50 to more than 10,000 employees).
Some key findings include…
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If You Have a Top Hat Plan, This Court Case Is Worth Watching
A recent court decision underscores the importance of clear employee communications when describing a change in benefits.
Defining the terms of a top hat plan can be one of the most thorny aspects for plan sponsors setting up a nonqualified deferred compensation plan for senior managers or highly compensated employees.
A federal district court case provides some insights into how one court views these plans.
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Plan Sponsors Can Learn Several Powerful Lessons from Osberg Case
A recent court decision underscores the importance of clear employee communications when describing a change in benefits.
In Osberg v. Foot Locker Inc., 07 Civ. 1358 (KBF) (S.D.N.Y, Oct. 5, 2015), the U.S. District Court for the Southern District of New York found that a plan sponsor did not clearly communicate the concept of “wear-away” — the time after conversion during which an employee does not accrue additional pension benefits — to plan participants when converting its traditional defined benefit plan to a cash balance plan.
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Get Ready for April’s Deadline For Pre-approved DC Plan Adoption
An April 2016 deadline looms for defined contribution retirement plan sponsors and administrators, one that’s not related to taxes. But there could be tax consequences if you miss it!
Plan sponsors with a pre-approved defined contribution plan (master or prototype, volume submitter) have either received or are about to receive a packet of information from their third-party administrator with instructions to review and adopt the latest version of the plan document included.
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Market Volatility: How Concerned Should Retirement Plan Fiduciaries Be?
Financial market volatility is not new; we have experienced it before and no doubt will experience it again. But regardless of how many times we live through it, market volatility can be unsettling. Its impact is felt by both defined benefit and defined contribution plans. It raises questions and concerns for both plan participants and fiduciaries. However, the presence of market volatility provides an opportunity to revisit existing investment policy statements and risk management strategies.
What can a plan sponsor do to help ensure it is fulfilling its fiduciary responsibilities?
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Fed Agencies Closely Watching
Independent Contractor vs. Employee Debate — And Plan Sponsors Should, Too
Many employers try to control retirement plan costs by excluding certain employees from participation (see ¶222 in Thompson’s Pension Plan Fix-It Handbook). Independent contractors are often among the excluded, but it is critical that exclusions comply with applicable law.
Being Prepared Can Make ERISA Audit Of Plan Less Onerous
Who are those new people in the office asking you or your staff so many questions? They might be ERISA auditors conducting an audit on your retirement plan.
ERISA requires that certain employee benefit plans file an annual report (the Form 5500) detailing the plan’s financial condition. In addition, the plan sponsor must engage an Independent Qualified Public Accountant on behalf of the plan’s participants to audit the plan financials prepared by the plan sponsor. This is generally referred to as an ERISA audit.
Why It Matters How Much You Know About the Plan Auditor You Hire
Retirement plan sponsors have the fiduciary responsibility both to do due diligence when selecting service providers, then to continue monitoring them to ensure that the service providers are doing what they were hired to do.
IRS Is it Education or Is It Advice? Rules For Those Who Give It May be Changing
The wait is over, but the impact remains to be seen: The U.S. Department of Labor has reissued its proposed regulations on the definition of a fiduciary. Originally set forth in October 2010 (see January 2011 column), the proposed rule was withdrawn after numerous critical comments and negative public testimony concerning many of its provisions were lodged.
IRS Makes Several Changes to EPCRS That Employers Ought to Like
IRS’ recent announcement of two new rounds of revisions to its Employee Plans Compliance Resolutions System brought several housekeeping changes that ought to make completing EPCRS procedures easier.
Federal Agencies Monitoring Retirement Plans – Try to Work Smarter with Less
Budgetary constraints affect governmental agencies as well as corporations. As a result, both the U.S. Department of Labor and IRS are using data and lessons learned from completed compliance projects to allocate resources dedicated to monitoring employer-sponsored retirement plans effectively.
Sponsors Need More Guidance On Outsourcing Services: ERISA Council
As it’s become routine for employee plan sponsors to shift their recordkeeping to service providers outside the company, keeping sight of their fiduciary responsibility while outsourcing has become more important than ever.
Changes to Forms 5500 and 5500-SUP Ring in the New, but Bring Back Some Old
Preparing employer benefit plans’ annual filings to federal agencies can be detailed and timeconsuming. A review of recent changes to the 2014 Form 5500 series indicates this process could become even more laborious for some plans, as the government seeks more data disclosure.
Plan Sponsors Need to Take Advantage Of Regulators’ IRA Rollover Scrutiny
It seems as though you can’t pick up a newspaper or read a retirement industry publication without seeing something being written about rollovers. Why all the attention? Quite simply, there is a lot of money sitting in the individual retirement accounts that receive most of the rolled-over retirement funds of working or retired Americans.
To illustrate that point, an October 2014 U.S. Government Accountability Office report titled “Individual Retirement Accounts” indicated that for the 2011 tax year, IRAs had a total fair market value of $5.2 trillion.
Written by Mary Andersen for Benefits Magazine
Preparing for a Health and Welfare Plan DOL Audit
This article takes and ERISA Health and Welfare Plan step by step through a DOL audit, from the initial notification and request for documents through the investigative process.
Reproduced with permission from Benefits Magazine, Volume 51 Number 11, November 2014, pages 42-47 published by the International Foundation of Employee Benefit Plans (www.ifebp.org), Brookfield, Wisconsin. All rights reserved. Statements or opinions expressed in this article are those of the author and do not necessarily represent the views or positions of the International Foundation, its officers, directors or staff. No further transmission or electronic distribution of this material is permitted. Subscriptions are available (www.ifebp.org/subscriptions).
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New Guidance from IRS on Hybrid Plans Gives Sponsors Rate Options
The IRS recently issued additional guidance on hybrid retirement plans that may mean you need to amend your plan, if your plan’s interest crediting rate is not in line with the new rates.
Hybrid plans include cash balance and pension equity plans, and are often used by defined benefit plan sponsors to reduce costs. The regulations announced Sept. 19 clarify rates options for plan sponsors and generally apply to plan years that begin on or after Jan. 1, 2016; they also update 2010 proposed and final regulations.
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ERISA at 40: Does Historic Overhaul Of Benefits Remain Relevant Today?
The Pension Reform Act of 1974 (Pub. L. 93-406) was signed into law at 11:38 a.m. on Sept, 2, 1974. ERISA, as the Employee Retirement Income Security Act of 1974 is fondly known, was the most far-reaching overhaul of benefit rules in U.S. history. But is it relevant 40 years later?
For a taste of retirement plan philosophy at the time of the Act’s debut, let’s review ERISA’s Title I, Act. Sec. 2(a), which includes these seminal ideas:
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Defined contribution plan sponsors are starting to think like defined benefit plan sponsors when it comes to their retirement savings and income culture.
In its June report “Qualified Retirement Plan Barometer — A Study of Retirement Income Culture Among the Fortune 1000”, MetLife examined retirement income culture in companies that offer only a DC plan and at those that offer both types of plans. Retirement income culture is defined by MetLife as “one which places a balanced emphasis on retirement savings and retirement income.”
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So you thought you were all caught up on annual-report tasks when you filed your Delinquent Filer Voluntary Compliance Program form with the U.S. Department of Labor?
Well … not exactly.
Some plan sponsors that filed under the DFVCP may still find themselves with tasks to complete before Dec. 1. Bottom line: Avoiding Form 5500 penalties for late filing is now a two-step process — one to satisfy DOL and another for the IRS.
IRS has been busy with Form 5500 guidance, most notably Notice 2014-35, released May 9, about penalties for late filing of some forms with the agency. It said IRS would now require separate filing of a paper Form 8955-SSA in order for Title I ERISA-covered late filers to avoid financial penalties. The filers that are eligible for and meet the DFVC Program’s requirements typically submit annual Forms 5500, 5500-SF with the DOL.
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Briefly, as of June 26, 2013, the Defense of Marriage Act was ruled unconstitutional, with the effect that a same-gender spouse must be treated in the same way as an opposite-gender spouse. The conundrum is that some states recognize same-gender marriages and some do not, resulting in a potential administrative nightmare. Those 2012 rules reserved a paragraph for future guidance on a guide to help plan sponsors understand the potentially voluminous disclosures. Well, that proposed guidance has arrived, so this column explains what DOL is proposing and how plan sponsors can provide more input before the guidance is finalized.
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As most retirement plan sponsors are keenly aware, U.S. Department of Labor final regulations require service providers to deliver specific fee information to responsible plan fiduciary clients. Those 2012 rules reserved a paragraph for future guidance on a guide to help plan sponsors understand the potentially voluminous disclosures. Well, that proposed guidance has arrived, so this column explains what DOL is proposing and how plan sponsors can provide more input before the guidance is finalized.
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Use IRS Audit FAQs, Agent Training Manuals To Prepare for Potential Examination This month we will highlight practical reminders — some old and some new — for plan sponsors.
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The Growing Number of DOL Audits Makes Preparation Critical. IRS and the U.S. Department of Labor have improved their data-mining techniques, which is enabling them to conduct more targeted audits. This column will focus on DOL audits and how plan sponsors can best prepare for them.
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In January’s column we discussed the various factors that have put derisking on most plan sponsors’ radar, and touched on basic derisking strategies. In this month’s column we discuss popular derisking techniques: lump-sum distributions, liability-driven investing and annuitization, as well as the administrative considerations each present.
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If you have a DB plan, chances are your company is discussing derisking. This approach for managing DB pension liabilities transfers terminated vested participants’ and retiree benefit obligations from company balance sheets when lump-sum payments are made or an insurance company that buys the liabilities continues paying benefits independent of the plan sponsor.
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Compliance Reviews, Audit Preparation Make Good End-of-Year Activities
- At this time of year it is good to plan ahead to help ensure that, as a plan sponsor or administrator, you are taking steps to avoid missing anything critical as the year comes to a close. It is also the time to look at major trends of the past 12 months to determine whether they were passing fads, or are trends here to stay.
What IRS Guidance After DOMA Decision Means for Employee Benefits
- Many retirement plan areas require immediate attention as the result of the U.S. Supreme Court’s ruling in U.S. v. Windsor and recent IRS guidance on how that ruling on same-gender marriage applies to federal tax law and regulation. It’s particularly important to review defined benefit plan issues.
IRS Notice on Contingent Events Provides Guidance on Communications
- Another notice to add to your ERISA compliance calendar! The Pension Protection Act of 2006 added Section 436, with parallel rules in ERISA Section 206(g) as well as the notice requirement in ERISA Section101(j). For purposes of this column, we will refer to the participant notice as the “101(j) notice.” Read the column to find out when the notice must be provided.
GAO Report Asks IRS, DOL to Cooperate On Retirement Fund Rollovers
ERISA has specific rules regarding how to handle rollovers from a qualified plan. Compliance with the rules means following an “archaic” process or so says a recent GAO report. The report recommends restricting the practice of issuing a check to the participant that requires the participant to send the check to the new service provider. Read more about the GAO’s findings
DOL Shares Vision for Benefit Illustrations Of Lifetime Income Streams
ERISA requires that defined benefit plans and money purchase pension plans offer a survivor annuity as the normal form of payment. In fact, when you think of retirement you think of a monthly pension check……..until the introduction of the 401(k) plan. Many employers are terminating or freezing their traditional defined benefits or changing the plan design to a cash balance design. For many employees, defined contribution plans will be the primary source of retirement income other than Social Security. Defined contribution plan participants generally elect lump sum distributions. The DOL believes that showing participants what their total account balance would represent in terms of a monthly payment would be beneficial to participants.
Follow ERISA Procedures In Plan Administration…or Else!
Employers and plan administrators fail to follow procedures required under ERISA at their peril. ERISA is a process statute. In Tussey v. ABB, Inc., No. 2:06-CV-04305-NKL (W.D. Mo., Mar. 31, 2012), the court found that the plan fiduciaries could not prove that established policies and procedures were followed. The court said the plan fiduciaries breached their fiduciary duties and were jointly and severally liable for: (1) $13.4 million the plan lose due to failure to monitor record keeping fees and negotiate rebates and (2) $21.8 million the plan lost due to mapping one investment fund to another. The court also held the service provider jointly and severally liable for $1.7 million for lost float income. Download the pdf to read more about what lead to the staggering penalties.
Found a Problem in Your Plan Audit? Next Stop May Be IRS Voluntary Correction Program
In a previous article, we discussed the SCP or self-correction component of the IRS ERISA compliance (EPCRS). In this article, we discuss the VCP or Voluntary Correction Program component. VCP requires a filing with the IRS while the SCP doesn’t. Read more about VCP
Government Shines Spotlight on Annuities
There was a flurry of governmental paperwork issued in February 2012 to promote retirement security. The crux of the releases and related regulatory guidance were aimed at helping people achieve retirement security by encouraging the use of annuities in retirement vehicles including ERISA qualified plans and thereby avoiding the possibility that retired persons will outlive their retirement savings. Enter the QLAC or qualified lifetime annuity contract. Read more about QLACs.
A New Normal for Normal Retirement Age
Normal retirement age is a key definition in ERISA retirement plans and ERISA compliance efforts. Adherence to the terms of the plan is a critical ERISA compliance requirement. However, the age at which people retire has been the subject of recent surveys. This column will cover two topics: key points fromvarious surveys illustrating worker expectations for working past age 65, and the implications for employers of a potential increase in the number of older workers and possible legal obstacles posed by phased retirement, from an employee benefit perspective.
Effective Record Retention May Save Plan Sponsors From Costly Penalties
Document, document, document; you have read it many times in this column. The necessity to document applies not only to policies and procedures, but also to the information necessary to calculate a benefit.
DOL says it is time to repeal ERISA limited scope audit
Employers are subject to audits of their ERISA compliance. But how useful have they been? A report by the U.S. Department of Labor’s Office of Inspector General to the Assistant Secretary for Employee Benefits Security Administration attempts to answer this question: “Has EBSA’s Oversight of ERISA Audits Improved Audit Quality and Increased Participant Protections?”
Pension Funding, Plans’ Financial Impact, Fee Disclosures Concern Sponsors in Surveys
Employers and plan administrators often find surveys useful when gauging the trends and temperament of the retirement plan industry.
Effective Record keeping Can Save Time and Penalties
A recent court case in which a company failed to maintain adequate records of hours highlights the importance of maintaining accurate records.
Target Date Funds – Getting Regulatory Attention
Target date funds (TDFs) have emerged as the most popular qualified default investment alternative (QDIA) since indentified by the DOL as an acceptable QDIA. Government scrutiny of TDFs began when target date funds experienced major losses during 2008-2010.
Simple Beneficiary Forms can be Problematic
Just another form in the enrollment package, yet the consequences of inaccurate completion or failure to update can be devastating to those left behind. Read more about this topic and recent court cases involving beneficiary designations.
GAO Report – Plan Sponsors Don’t Understand Fees
Despite government and service provider efforts, many plan sponsors still do not understand plan expenses. A recent GAO study provides interesting statistics that should alert plan sponsors to get help if they need it to understand their plan’s fee structure.
Tussey v ABB, Inc. – what not to do if you are a plan fiduciary
The Court found that plan fiduciaries breached their fiduciary duties and were liable for funds the plan lost due to failure to monitor recordkeeping fees and negotiate rebates. This case highlights what fiduciaries should not do in their role as plan fiduciary.
DOL to Propose New ‘Fiduciary’ Definition in 2012
EBSA received over 200 comment letters and held two days of public hearings. What provisions contributed to the outpouring of comment letters and requests to testify at the hearing?
Government Shines Spotlight on Annuities
The IRS recently issued a package of guidance called “Guidance Package on Lifetime Income”. Included in the guidance was proposed regulations on Qualified Longevity Contracts (QLACs). Will the proposed guidance be enough to pique plan sponsor’s interest in offering annuities? Read the article to learn more about QLACs.
ERISA Advisory Council report on employee benefit auditing
The ERISA Advisory Council issued a report on employee benefit auditing and financial reporting models. The primary findings include:
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- some auditors require more training despite available information;
- limited scope audits may be misunderstood;
- the DOL should continue educational outreach efforts.
The Importance of Procedures and Controls
Your eyes are glazing over as you read the column heading but persevere and read on. In the July 2010 Newsletter you read that a key to avoiding common retirement plan errors is establishing operational procedures and controls. The importance of internal controls was also mentioned at a recent Mid-Atlantic IRS liaison meeting; the existence and use of procedures and controls will go a long way in helping you survive a government audit. Established practices and procedures are required to utilize the IRS VCP component of EPCRS. If you have recently endured or are still enduring a Form 5500 ERISA financial audit, you have been peppered with questions regarding the procedures and controls utilized in your plan’s operations. In fact, you may be responding to your auditor’s management letter comments when you receive this newsletter.
CIGNA v Amara
Other courts have already referenced this case; was there a clear winner in this case? Both sides claimed victory but it may be years before this case’s impact is known.
Automatic enrollment-more choices, more decisions for Plan Sponsors
Automatic enrollment, frequently referred to as negative elections, has received the blessing of the IRS through a series of Announcements, Revenue Rulings, Bulletins and Information Letters. As a result of the Pension Protection Act of 2006 (PPA), automatic enrollment has been anointed by the IRS. We will discuss automatic enrollment in terms of pre-PPA and post-PPA. Keep in mind that other than state preemption, the post-PPA opportunities are effective for plan years beginning on or after January 1, 2008.
DOL’s Interim Final Rule Requires Detailed Fee Disclosure
Plan fiduciaries will be able to obtain the information necessary to make informed decisions regarding services rendered to and expenses paid from the plan. That’s the goal of the interim final rule relating to fee disclosure that the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) issued on July 16. The regulations – Reasonable Contract or Arrangement Under Section 408(b)(2) – Fee Disclosure – are effective July 16, 2011. They apply to defined contribution and defined benefit plans. They don’t apply to health and welfare plans, which will be subject to separate provisions to be issued in the future. Interim regulations can be relied upon as if they were final; however the interim regulations are subject to change. Comments on the interim regulations can be made until Aug. 30, 2010.
Employee Benefit Programs – Why should you be concerned?
Errata Notice — Due to publishing errors, on page 22, the word “legal” should be removed before “Defined Contribution Plans” and “Health Plans”. Also on page 22, column 3 , the copy should read as follows:
Interviewing the key players
The purpose of the interviews is threefold:
1. to verify that the plan operates in accordance with its terms;
2. to verify that each player in the operational process is aware of his/her responsibility and understands the plan; and
3. to identify potential areas needing improvement.
Pick up any business related periodical and you invariably see articles, such as the following, on ERISA compliance, increased fiduciary penalties, or increased benefits litigation.
Back to Basics “Service Crediting Rules” by John P. Griffin
It seems so basic – crediting service for various qualified plan purposes. In fact, service crediting is one of the most fundamental concepts of plan administration. The principals apply to plan eligibility, vesting and sometimes the right to accrue a benefit. Yet some persons who administer qualified plans often misapply these “basic” concepts. They either never learned the rules or have misinterpreted them.