March, 2007
It is a Matter of Focus
(or how to get through your stack of professional reading)
WHAT IS IT? –This issue of ErisaALERT is a departure from the usual format of our ErisaALERTS which generally focus on issues related to recent government guidance. Recently I decided to go through my ever growing stack of professional reading and attempted to do so in an orderly fashion by creating mini-stacks by topic. I started with defined contribution, defined benefit and health & welfare and discovered that my mini-stacks were not so mini; so I decided to subdivide and created more stacks including cash balance plans, interest rates, HSAs, wellness, court cases, QDIA, auto enrollment, benefit statements etc. My single stack of professional reading was beginning to look like a family tree!!! Then that ever present question surfaced, what should I look at first; where should I focus my attention? What would I do if I were in a corporate benefits position faced with an enormous amount of information releases by consulting firms and dealing with the day to day responsibilities of my job? I came up with the following focus areas and hope it may help you.
FOCUS AREAS:
401(k) Fees – The phrase “the best defense is a good offense” comes to mind in the area of fees. Recent Congressional testimony regarding fees as well as related commentary has appeared in newspapers and other media across the country. It is only a matter of time before your participants ask for details regarding your plan’s fee arrangement. If you haven’t already started I would focus on
- knowing what you are paying to whom and for what services
- asking your provider for fee details
- understanding your Company’s process for monitoring fees and providers
- revisiting the DOL’s website regarding fee disclosure
- monitoring the recent court cases regarding excessive fees and
- developing a response regarding fees that you will provide to participants
A simple web search entry “401(k) fee disclosure” will provide you plenty of websites to gain more information to enable you to ask questions of your providers and help you in this area.
Periodic Benefit Statements – Individual account plans that permit participant investment direction must comply with the PPA requirements beginning with the quarter ending March 31, 2007. (See ErisaALERT 2007-1) If you haven’t done so already, you should confirm that your recordkeeper is set up to comply with the requirements.
Investment Advice – In February, the DOL issued FAB 2007-1 relating to the statutory exemption add by PPA regarding providing investment advice to participants. The bottom line is that if you are already provide investment advice which was developed based on prior DOL guidance, you don’t have to do anything……unless you want to. However, that said, you may want to focus your attention as follows:
- Compare your current investment advice program to the FAB; you may find that you satisfy the requirements.
- Focus on the “process” of selecting and monitoring an investment advisor described in the FAB and compare to your current process; adjust your current process accordingly regardless of whether you choose to avail yourself of this exemption
- Assess whether your current advice program meets the needs of your participants.
- Determine if you want to explore other investment advice programs that are not either computer model driven or fee offset arrangements.
Keep in mind that the “devil is in the details” regarding this latest guidance.
Auto enrollment – Auto enrollment is gaining in popularity. PPA provides added choices for plan sponsors including a nondiscrimination safe harbor for automatic enrollment plans relieving plan sponsors of the need to perform ADP/ACP testing and extending the time frame for corrections for failed tests for employers who don’t avail themselves of the safe harbor. The PPA also alleviated plan sponsor concerns regarding state law and providing refunds to participants who decide they don’t want to participate after being automatically enrolled. However, in order to “preempt” state law and provide refunds, the plan must offer a Qualified Default Investment Arrangement (QDIA). The DOL was charged with issuing final QDIA regulations last month; to date we have proposed regulations. Most of the automatic enrollment provisions in PPA are effective for plan years beginning after 12/31/2007. A future ErisaALERT will discuss automatic enrollment choices and implications.
You may want to direct your focus on:
- The pros and cons of adding auto enrollment if you don’t already have it
- Implementing an automatic increase feature if you already have auto enrollment
- Costing out the employer match requirements for the auto enrollment nondiscrimination safe harbor. At the same time, you may wish to cost out the existing nondiscrimination safe harbor.
- Reviewing our current default investment vs the proposed QDIA regulations if you already have automatic enrollment
- Analyzing you current investment line up vs the proposed QDIA regulations if you are contemplating adding auto enrollment
- Talk to your recordkeeper regarding the administrative requirements/implications of plan changes
- Develop an implementation plan including a communication campaign
- Obtain necessary legal and investment advisory expertise
Wellness Programs – read, read, read available information. Examine your plans for all opportunity areas; you can start small e.g., reimbursement for fitness programs. Develop a philosophy if you don’t already have one regarding the employee/employer role in the provision of health care. Reach out to other employers who have implemented wellness programs to gain an understanding of what is involved as well as results to date. Understand HIPAA implications as well as the impact of other Federal statutes.
125 Nondiscrimination testing – make sure you perform your 125 nondiscrimination testing, especially dependent care. Document the results and maintain the documentation.
401(k) Nondiscrimination testing – you may have already completed this, if not, follow up with your provider to determine when the testing will be completed. Document the results and maintain the documentation.
Forms 5500 – start gathering your Schedules A. If your plan requires an ERISA audit, gain an understanding of the auditor’s time to completion; you may want to file a Form 5558. If this is the first year your plan requires an ERISA audit, hire one quick!!
Summary Plan Descriptions – are they up to date? Will you be making changes to your plans this year? Don’t forget either the summary of material modifications and/or an updated SPD.
Defined Benefit Plans –you know who you are if you have been affected by the interest rates required by PPA for lump sum distributions. IRS Notice 2007-7 provides details on the correction methods. The first correction method required correction by March 15, 2007. All I can say is continue working with your actuary; if you don’t already have a project plan with due dates for completion, develop one and monitor it frequently.
HSAs – If you have HSAs you either decided to rush and do something by March 15th or not. If you didn’t do anything regarding the FSA rollovers to an HSA, determine if you want to and when and develop an implementation plan.
Note: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plans. For more information on this ErisaALERT, contact us by phone at 610-524-5351 and ask for Mary Andersen or 973-994-7539 and ask for Theresa Borzelli.
Copyright©2007, ERISAdiagnostics, Inc. www.erisadiagnostics.com
ErisaALERT 2007-2
